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Unformatted text preview: Second challenge: Solutions Eco 212: Summer 2010 Question 1 (8 points). a. If gold is identical, then we would expect e = 1 and thus: e = 1 = PE P f = $ P Ounce 5 yen $ 3000 Yen Ounce (1) $ P Ounce = P f Yen Ounce E Yen $ = 3000 5 (2) P = $600 (3) b. An ounce of gold costs $1000 in the US and $600 in Japan, so gold is more expensive in the US. The dollar buys too much Yen, and thus too much gold in Japan. The dollar is thus overvalued. Alternatively, from the equation (2), E must fall to get P down to $600. Question 2 (12 points) . a. The average rate of technical change in the recession was:- 5% =- 1 3 1 . 5% + g T g T =- 4 . 5% (4) b. The contribution of technology was for 2009 was: contribution =- 4 . 5%- 5% = 0 . 9 = 90% (5) c. The fall in GDP during the recession was primarily due to technical change. As with most recessions, it is difficult for capital per worker to fall that much from quarter to quarter. Of course, the answer is still incomplete. What caused the fall in productivity?...
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- Summer '08