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ANSWERS Problem Set #1 Macroeconomics 1B, Professor Sheffrin, Fall 2009 1. Below are consumption data for 2006 and 2007. Assuming that 2006 is the base year (equal to 100), what is the value of the CPI for 2007? What is the inflation rate (as measured by the CPI) between 2006 and 2007? Goods Amount Price 2006 Price 2007 Pizza 12 \$10 \$12 Economics Book 1 \$65 \$66 Gas 10 \$2 \$2.50 Diet Coke 24 \$1.50 \$1.70 Answer: Cost of basket in year 2006=12*10+1*65+10*2+24*1.5=241 Cost of basket in year 2007=12*12+1*66+10*2.5+24*1.7=275.8 4 . 114 100 * 241 8 . 275 2007 = = CPI % 4 . 14 % 100 * 100 100 4 . 114 = - = π 2. Fill in the blank entries in the following table: Note: GDP deflator = [(nominal GDP)/(real GDP)] x 100 NA means not applicable. Do not fill in Year 2003 2004 2005 Real GDP 2000 NA 2200 NA 2500 Nominal GDP 3500 NA 4000 NA 5000 GDP deflator 175 NA 181.8 NA 200 Inflation rate NA 3.9% NA 10% NA Real GDP growth NA 10% NA 13.6% NA 3. Fill in for the question marks, assuming that National Income = 3500 a. Wages 1000 Interest 300 Rents ?1200=3500-1000-1000-300 (National income= wages + profits + Rents + interest) Prop Inc + Profits 1000 1

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Fill in for the question marks, assuming that GDP = 3500 b. Consumption 1700 Gross Investment 600 Net Investment 400 Depreciation ?200=600-400 (Net Investment=Gross investment-depreciation) Government purchases ?1300=3500-1700-600-(-100) (C+I+G+Net Exports=GDP) Net Exports -100 Exports ?400=500-100 (Net Exports=Exports-Imports) Imports 500 4. Consider the following data for the economy: Population over 16 225 million Employed 160 million
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