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101-2011-PS1ans

101-2011-PS1ans - Economics 101 Intermediate Macroeconomic...

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Economics 101 Marek Kapiˇ cka Intermediate Macroeconomic Theory Spring 2011 Problem Set 1 Solution 1 Quantity and Price Indexes Consider an economy with two goods, beer and wine. Suppose that the prices and quantities sold at times 2007 and 2008 are the following: 2007 2008 Prices Beer 10 11 Wine 20 10 Quantities Beer 8 7 Wine 3 6 1. Calculate nominal GDP for both years 2007 nominal GDP = 10 * 8 + 20 * 3 = 140 2008 nominal GDP = 11 * 7 + 10 * 6 = 137 2. Calculate the following measures of quantity: (a) Growth of Real GDP in 2007 prices 2007 real GDP: 140 2008 real GDP: 10 * 7 + 20 * 6 = 190 Real GDP growth: 190 140 - 1 = 0 . 357. The growth is 35.7% (b) Growth of Real GDP in 2008 prices 2007 real GDP: 8 * 11 + 3 * 10 = 118 2008 real GDP: 137 Real GDP growth: 137 118 - 1 = 0 . 161 . The growth is 16.1% (c) Chain-Weighted Real GDP growth Real GDP growth: 1 . 357 * 1 . 161 - 1 = 0 . 255 . The growth is 25.5% 1
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3. Compute the following measures of price changes (a) GDP deflator growth based on Real GDP in 2007 prices 2007 GDP deflator: 140 140 * 100 = 100 2008 GDP deflator: 137 190 * 100 = 72 . 1 GDP deflator growth: 72 . 1 100 - 1 = - 0 . 279 . The growth is -27.9% (b) GDP deflator growth based on Real GDP in 2008 prices
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