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# ANS_2 102 - Name Principles of Macroecon Spring 2011...

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Name _____________________ Principles of Macroecon Spring 2011 Instructor: Mario Muzzi Problem Set #2 – Due 3/8/11 1) (7 pts) Calculating GDP and Inflation : The following table represents output and prices of the only two goods (X and Y) produced in a fictional economy. Based on this information, answer questions ‘a’ through ‘h’ below. Year Price of Good X Quantity of Good X produced Price of Good Y Quantity of Good Y produced 2000 \$6 30 \$10 15 2001 \$8 30 \$12 20 (a) Calculate Nominal GDP in 2000. \$6*30+\$10*15= \$330 (b) Calculate Nominal GDP in 2001. \$8*30+\$12*20= \$480 (c) Calculate the growth rate of Nominal GDP between 2000 and 2001. \$480-\$330=\$150; \$150/\$330= 45.45% (d) Using 2000 as the base year, calculate real GDP for 2001. \$6*30+\$10*20= \$380 (e) Calculate the growth rate of real GDP between 2000 and 2001. \$380-\$330= \$50; \$50/\$330 = 15.15% (f) Calculate the GDP Deflator for 2000 and 2001. Deflator for 2000 is 100 because it is the base year. Deflator for 2001 is (\$480/\$380)*100= 126.3 (g) Which of the growth rates calculated above is the better indicator of this economy’s ability to produce goods and services? Why? The growth rate for Real GDP is a better indicator because it removes the affects of inflation from the calculation. 2) (5pts) GDP and Income : a) (3 pts) What are the differences between: i) GNP and National Income? GNP – Depreciation = National Income ii) National Income and Personal Income? National Income- Corporate Retained Earnings + Transfer Payments+ Interest Payments from Government to Individuals iii) Personal Income and Disposable Income? Personal Income- Taxes= Disposable Income

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b) (2 pts) (True or False) Nominal GDP in a particular year is always going greater than Real GDP for that same year? (Explain) False: If deflation occurs, nominal GDP will be less than real GDP. For example, if the base year is 2005 and there is no change in production between 2005 and 2010. Then during deflation nominal will be less than real because Nominal GDP for 2010
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ANS_2 102 - Name Principles of Macroecon Spring 2011...

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