ECON420HW1

# ECON420HW1 - ECON 420-002 and 004: Fall 2008 Homework 1 Due...

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ECON 420-002 and 004: Fall 2008 Homework 1 Due in class on Sep. 3, 2008 1. Consider an economy that produces and consumes bread and automobiles. In the following table are data for two different years.(15 points) Year 2000 Year 2010 ____________________________________________________________________________________ _ Price of an automobile \$50,000 \$60,000 Price of a loaf of bread \$10 \$20 Number of automobiles purchased 100 120 Number of loaves of bread purchased 500,000 400,000 a. Using the year 2000 as the base year, compute the following statistics for each year: Nominal GDP, Real GDP, the implicit price deflator for GDP, and a fixed-weight price index such as CPI. b. How much have prices risen between year 2000 and year 2010? Compare the answers given by the Laspeyres and Paasche price indices. Explain the difference. c. Suppose that you are senator writing a bill to index Social Security and federal pensions. That is, your bill will adjust these benefits to offset changes in the cost of living. Will you use the GDP deflator or the CPI? Why? 2.

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## This document was uploaded on 10/28/2011 for the course ECON 420 at UNC.

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ECON420HW1 - ECON 420-002 and 004: Fall 2008 Homework 1 Due...

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