Page 1 of 11 QUIZ 1 “TEST BANK” If you want partial credits always show your calculations. Exercise 1: The economy of McNeil Building is very small and the transactions per year are so few that we can keep track of all of them. You have been hired as the chief of the bureau statistics of the McNeil Building. Some of the people who live in this small country are: Milton (who sells tomatoes), Robert (who owns a wheat farm) and Edward (who has a bakery). These are all the transactions for the last three years: Year 2008 Milton sells 3 pounds of tomatoes at 20 utils each (the currency of McNeil Building) to a final consumer. Someone bought a second hand bike for 300 utils. Robert sells 4 pound of wheat to Edward for 15 utils each. Edward uses those 4 pounds to produce 4 pounds of bread. He sells each pound of that bread for 25 utils. Year 2009 Fact: The government of the McNeil Building decides to stimulate the economy printing a lot more Money. Milton sells 3 pounds of tomatoes at 27 utils each. Robert sells 4 pound of wheat to Edward for 20 utils each. Edward uses those 4 pounds to produce 4 pounds of bread. He sells each pound of that bread for 32 utils. Year 2010 Fact: Milton discovers a new technology for producing tomatoes. Now Milton can produce 7 pounds of tomatoes. He sells 4 of those rounds to Robert at 25 utils each, and he exports the rest of them to the Annenberg Hall for the same price. With the Money of the exported tomatoes Milton gets 2 imported carrots. Robert sells 4 pound of wheat to Edward for 22 utils each. Edward uses those 4 pounds to produce 4 pounds of bread. He sells each pound of that bread for 35 utils. The representative consumption basket of the McNeil building is 3 pounds of tomatoes and 3 pounds of bread. Use year 2008 as the base year. a) (5 points) Compute for each year the real GDP, the nominal GDP, the GDP deflator ad the CPI for this small country.
Page 2 of 11 b) (2 points) Use your computations to explain the differences between the CPI and the GDP deflator. Exercise 2: You are the new chief economist of a small country with the following information: In this country there are only 4 goods: Books (QB); Magazines (QM); Films (QF); and CD’s (QCD). We can denote the prices of those goods respectively by PB, PM, PF, and PCD. All the books and the Magazines are produced in the country and consumed inside the country. All the Cd’s are imported (not produced in the country) and consumed in the country All the films are produced in the country and exported (not consumed in the country). Below is all the relevant data for this country: PB QB PM QM PF QF PCD QCD 2008 $500 350 $300 250 $250 200 $80 120 2009 $550 420 $350 220 $300 180 $85 140 2010 $600 450 $380 180 $350 220 $90 160 a) (4 points) Compute for each year the real GDP, the nominal GDP and the GDP deflator ad for this small country. Use 2008 as a base year. b)
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