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Unformatted text preview: Macroeconomics, Econ 202, Midterm Answers Instructions. Answer all four questions . 1. Answer all parts of this question. (a) Suppose data on output and prices are available for years 1 and 2. Using year 1 prices, GDP is 100 in year 1 and 105 in year 2, a 5% increase. Suppose using year 2 prices, GDP in year 1 was 2% lower than in year 2 GDP. Setting year 1 real GDP at 100, what is the chainweighted value of year 2 real GDP? The chainweighted growth rate of real GDP would be the average of the growth rates obtained using year 1 prices and using year 2 prices, or : 5(0 : 05 + 0 : 02) = 0 : 5(0 : 07) = 0 : 035 , or real chainweighted GDP in year 2 would be 3 : 5% higher than in year 1, or year 1 is 100 and year 2 is 103.5 : (b) The &amp;ow approach to unemployment emphasizes the &amp;ows into and out of unemployment. If the in&amp;ows and outl&amp;ows balance, then the unemployment rate will equal eu t = ( eu t + ue t ) , where eu is the &amp;ow from employment to unemployment and ue is the &amp;ow from unemployment to employment. If &amp;ows adjust rapidly, eu t = ( eu t + ue t ) would be equal to the actual unemployment rate. Is this the case for the U.S.? Yes. (c) According to the article by Barlevy (The cost of business cycles and the benets of stabilization, Federal Reserve Bank of Chicago Economic Perspectives, 2005Q1, 3249), how did Lucas propose measuing the cost of business cycles? Lucas measured the cost of business cycles as the percent of consumption a representative household would be willing to give up to eliminate all cyclical &amp;uctuations. 2. Suppose a rms output depends on the number of workers it hires and on how hard each employee works (the e/ort each puts in)....
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This note was uploaded on 09/29/2010 for the course ECON 202 taught by Professor Ravenna,f during the Winter '08 term at UCSC.
 Winter '08
 Ravenna,F

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