ps2ak - Principles of Macroeconomics Yonsei U Summer 2010...

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Principles of Macroeconomics Professor Riera-Crichton Yonsei U. Summer 2010 Problem Set 2 Answer Key Questions from the Textbook Frank and Bernanke: Chapter 3, Page 90: Problems 9 and 11 9. More people want to stay in hotel rooms near campus during parents’ weekend and graduation weekend compared with the rest of the year. Thus the demand curve shifts to the right during these weekends, causing an increase in the equilibrium price of hotel rooms (and, of course, a higher equilibrium quantity of rooms rented). 11. The mad cow disease announcement is likely to cause many consumers to substitute chicken for beef; this will cause the demand curve for chicken to shift to the right. The discovery of the new chicken breed will cause a rightward shift in the supply curve of chicken. The two developments together will increase the equilibrium quantity of chicken sold in the United States, but we cannot determine the net effect on equilibrium price from the information given. Chapter 4, Page 121 1. GDP is the market value of production, and is equal to: (300 fish)(1 clamshell per fish) + (5 boars)(10 clamshells per boar) + (200 bunches of bananas)(5 clamshells per bunch of bananas) = 300 + 50 + 1000 = 1350. John digging bait for George represents an intermediate service that is not counted in GDP. Similarly, George’s purchase of mature banana trees does not count in GDP since the trees are an existing asset. 4. GDP and value-added in lumber and furniture a. Value-added for 2007 is shown in the following table: Company Revenues Cost of purchased inputs Value added MNLogs 1500 0 1500 MNLumber 4000 1500 2500 MNFurniture 7000 4000 3000 b. The increase in GDP for 2007 equals the sum of the value added, which is $1500 + $2500 + $3000 = $7000
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c. Value-added for 2007 is shown in the following table: Company Revenues Cost of purchased
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