Econ420S10_Exam1_Solution

Econ420S10_Exam1_Solution - Economics 420 - Spring 2010...

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Economics 420 - Spring 2010 Mike Aguilar UNC at Chapel Hill Exam 1, Feb 15th 2010 Instructions : Please explain your answers thoroughly and show all necessary work. State your assumptions carefully. There may be more than one correct solution. The honor code is in effect. Note: Maintain a ceteris paribus assumption when interpreting all shocks. 1. (5pts) You are an economic advisor to a gubernatorial candidate. You and he are in a limousine on the way to a campaign speech and he needs to know the current size of the economy. You don’t know the exact figure, but you know that the real GDP in the third quarter of 2009 was 12,973.0 billion dollars. Use the current estimate for s.a.a.r. real GDP percent change of the fourth quarter of 2009 to answer your boss’ question. Answer: The real GDP of the third quarter of 2009 is 12,973.0 billion dollars. And the real GDP percent change (s.a.a.r.) of the fourth quarter of 2009 is 5.7%. However, this number is the annual rate. The quarterly percent change %Δ GDP Q 4 can be computed by: (1 + %Δ GDP Q 4 ) 4 = 1 + 5 . 7% 1 + %Δ GDP Q 4 = (5 . 7% + 1) 1 4 = 1 + 1 . 4% The real GDP level of the fourth quarter of 2009 should be: 12 , 973 . 0 * (1+1 . 4%) = 13 , 154 . 6 billion dollars. 2. (5pts) Suppose we can use the following proxy: Y/Y%ΔCPI - Y/Y%ΔCore = Y/Y%ΔCPI of Foods and Energy where “Y/Y%Δ” stands for “year over year percent change of”. Suppose the core CPI percent change is 1.8%. Using the most recent year over year percent change in U.S. CPI, what is the level of food and energy inflation in the U.S.? Answer: Note that we need ”year over year” percent change of CPI. (The month over month percent change of CPI is 0.1%). 1
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Year over year percent change of CPI is 2.8%. Year over year percent change of Core is 1.8%. Year over year percent change of CPI of foods and energy is: 2.8%-1.8%=1.0%. 3. (5pts) Choose and briefly discuss one of the following two topics we have talked about on class: (a) What was the Glass Steagall Act, and why is it of renewed interest today? (b) What is the major skepticism regarding the GDP growth of the fourth quarter of 2009?
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Econ420S10_Exam1_Solution - Economics 420 - Spring 2010...

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