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Problem Set #1, Answers 1.  IPD 2005  = 100(12,606/11,202)=112.53;   IPD 2002  = 100(11,819/10809)=109.34. π = 100(112.53/109.34 –1)=2.92%;  %Y = 100(11,202/10809.1-1) = 3.64% %(PY)    π %Y = 2.92+3.64 = 6.56% %(PY) (exactly) = 100(12,606/11819-1)= 6.66%. (The percentage change rule  approximation ignores “compounding”) %(M/P) ≈ ∆ %M -  %P = 100(6653/6407-1) -  π = 3.84-2.92 =0.92 % 2. a.  90 92.5 95 97.5 100 102.5 105 107.5 110 112.5 115 117.5 120 800 900 1000 1100 1200 1300 1400 1500 1600 Real GDP New AD New AS AS AD New Natural Y Natural Y SR Eq 2. b &c.

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90 92.5 95 97.5 100 102.5 105 107.5 110 112.5 115 117.5 120 800 900 1000 1100 1200 1300 1400 1500 1600 Real GDP New AD New AS AS AD New Natural Y Natural Y SR Eq In all 3 cases real GDP is 1212, so that real GDP growth is 1%.  In case a) economic  growth is 0; in the other cases it is 4.167%.  In case a) cyclical unemployment is –0.5%.  In cases, b) and c), cyclical unemployment is +2.5%.  In all cases, unemployment is
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