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mid102-2010 - Economics 102 Midterm Exam 1 Winter 2010...

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Economics 102 Midterm Exam 1 - Winter 2010 Professor Lee Ohanian Answer all Questions Answer all questions. Full credit for a question requires complete derivations and/or explanation of your answer. (1) Explain why in°ation as calculated by the CPI will di/er from in°ation as calculated by the GDP de°ator. Why might you expect that CPI in°ation would be higher? 6 points) (2) There are two goods, wine and cheese. The quantity of wine and cheese in year 1 is 10. The quantity of wine in year 2 is 11 and the quantity of cheese in year 2 is 8. The price of wine and cheese in year 1 is 1, and the price of wine in year 2 is 1, while the price of cheese in year 2 is 2. (6 points) Let the base year be year 1. Calculate nominal and real GDP in both year 1 and year 2. Show a formula for the GDP de°ator. (6 points) (3) Why are imports subtracted from GDP, while exports are added? (6 points) (4) An economy produces $40 of wine as the only ±nal good (GDP). In making wine, there is a grape grower who receives $15 for grapes, and there is a winemaker, who sells the wine to a wine store for $30. Calculate value added
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