hw1ansm11

hw1ansm11 - Homework 1: Solutions Principles of...

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Unformatted text preview: Homework 1: Solutions Principles of Macroeconomics: ECO 212 Question 1 (20 points). a. Housework and cooking are not sold in the market and are thus not counted. b. Sales tax is part of the value or price of the good and is thus counted. Add $2.13 to Consumption. c. The car is not resold, so the $10,000 of accesories are finished goods (not resold). Add $10,000 to consumption. d. The good is produced in the US and foreign workers working in the US are counted. Add $5,000 to wages and $6,000 to profits for a total of $11,000. e. China adds $200 of value added which is not counted. Lucky adds 2 $125- $200 = $50 of value added. Nordstrom adds 2 $125- 2 $125 = $50 of value added. Total value added is thus $100. Note that I have counted the inventory as a revenue to Nordstrom. This is consistent with the idea that Nordstrom sold the good to itelf, and has an inventory asset worth $150. Question 2 (30 points). a. For nominal GDP, we have: NGDP 2009 = 2 * $50 + 30 * $7 + 20 * $40 + 50 * $10 + 60 * $1 = $1 , 670 (1) Similarly, the nominal GDP for 2010 is $1,970 and for 2011 is $2030. b. The GDP deflator is always 100 for the base year, in this case 2009. For 2010, we have: GDP deflator 2010 = NGDP 2 * $50 + 40 * $7 + 22 * $40 + 50 * $10 + 40 * $1 100 = $1 , 970 $1800 100 = 109 . 4 (2) For 2011, I get 114.7. c. Real GDP is equal to nominal GDP in the base year, hence real GDP for 2009 is $1,670. For 2010, we have: RGDP 2010 = $1 , 970 109 . 4 100 = $1 , 800 (3) 1 One could arrive at the same answer by using current goods and base prices. For 2011, the real GDP is $1,770. d. The CPI for the base year (2009) is 100. For 2010, we have: CPI 2010 = 2 * $50 + 30 * $7 + 20 * $45 + 50 * $11 + 60 * $1 . 25 NGDP 2009 100 = $1 , 835 $1 , 670 100 = 109 . 9 (4)...
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hw1ansm11 - Homework 1: Solutions Principles of...

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