Answer2[1] - ECO 301 Intermediate Macroeconomics Fall 2009...

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ECO 301 Intermediate Macroeconomics, Fall 2009 Instructor: Yangyi Shan Homework Assignment 2 (Answer key) 1. The country of Old Jersey produces milk and butter, and it has published the following macroeconomic data, where quantities are in gallons and prices are dollar per gallon. Assume that year 1 is the base year. (10 Points) Year 1 Year 2 Good Quantity Price Quantity Price Milk 500 \$2 900 \$3 Butter 2,000 \$1 3,000 \$2 a) Find the normal GDP in the year 2 and the base year. What is the percentage increase in the nominal GDP from the base year to the year 2? Nominal GDP year1 (base year) = 500*\$2 + 2,000*\$1 = \$3,000 Nominal GDP year 2 = 900*\$3 + 3,000*\$2 = \$8,700 The percentage increase in the nominal GDP = [(\$8,700-3,000)/\$3,000]*100% = 190% b) Find real GDP in the year 2 and the base year. By what percentage does real GDP increase from the base year to the year 2? Real GDP year1 (base year) = \$3,000 Real GDP year 2 = 900*\$2 + 3,000*\$1 = \$4,800 The percentage increase in the real GDP =[ (\$4,800-3,000)/\$3,000]*100% = 60% c) Find the GDP deflator for the year 2 and the base year. By what percentage does the price level change from the base year to the year 2? GDP deflator year 1 (base year) = 100 GDP deflator year 2 = [\$8.700/\$4,800]*100 = 181 The percentage increase in the price level = [(181-100)/100]*100%=81% d) Would you say that the percentage increase in nominal GDP in this economy since the base year is due more to increases in prices or increases in the physical volume of output? Due more to increases in prices.

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This note was uploaded on 11/12/2011 for the course ECON 300 taught by Professor Zh during the Spring '11 term at SUNY Albany.

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Answer2[1] - ECO 301 Intermediate Macroeconomics Fall 2009...

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