199_09s_HW1 Answer KEy

199_09s_HW1 Answer KEy - ECON 199 L1 HW1 Solution, Spring...

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ECON 199 L1 HW1 Solution, Spring 2009 Question 1 1. Label each of the following statement true, false, or uncertain. Explain briefly. a. The unemployment rate provides all the information economists need about the labor market. - False. The discouraged worker phenomenon makes the participation rate an interesting number. b. If the Japanese CPI is currently at 108, and the US CPI is at 104, then the Japanese rate of inflation is higher than the US rate of inflation. - False. The level of the CPI means nothing. Its rate of change tells us about inflation. c. The rate of inflation computed using the CPI is identical to the rate of inflation computed using the GDP deflator. - False. The two measures are constructed differently and measure different things. - Inflation measured as the change in the GDP deflator attempts to measure changes in the aggregate price of goods produced. - Inflation measured as the change in the CPI attempts to measure changes in the aggregate price of goods consumed. - Although the measures are not identical, they do usually track each other closely. d. The largest component of GDP is investment. - False. The largest component of GDP is consumption. e. The propensity of consumption has to be positive, but it can take any positive value. - False. The propensity to consume must be less than one for our model to be well defined. f. An increase in the MPC leads to a decrease of output, since more goods is consumed and less is invested. - False. An increase in the MPC leads to an increase in output because the multiplier becomes bigger. 1
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Question 2 (Ch2 Q3) Suppose you are measuring annual U.S GDP by adding up the final value of all goods and services produced in the economy. Determine the effect on GDP of each of the following transactions. (a) A seafood restaurant buys $100 worth of fish from a fisherman. No change. This transaction is a purchase of intermediate goods. (b) A family spends $100 on a fish dinner at a seafood restaurant. +$100. personal consumption expenditures (c) Delta Airlines buys a new jet from Boeing for $200 million. +$200 million; Gross Private Domestic Fixed Investment (d) The Greek national airline buys a new jet from Boeing for $200 million. +$200 million; Net Exports (e) Delta Airlines sells one of its jets to Denzel Washington for $100 million. No change; the jet was already counted when it was produced, that is presumably when Delta or some other airline bought it new as an investment. 2
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Question 3 (Ch2 Q4) An economy produces 3 goods: cars, computers, and oranges. Quantities and prices per unit for years 2006 and 2007 are as follows: 2006 2007 Quantity Price ($) Quantity Price ($) Cars 10 2000 12 3000 Computers 4 1000 6 500 Oranges 1000 1 1000 1 a. What is nominal GDP in 2006 and in 2007? By what percentage does nominal GDP change from 2006 to 2007? -
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199_09s_HW1 Answer KEy - ECON 199 L1 HW1 Solution, Spring...

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