# mid1m11 - First challenge Eco 212 Summer 2011 The Challenge...

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First challenge Eco 212, Summer 2011 The Challenge is closed book. Good luck! The following formulas may be of use. Value added = Revenues - cost of goods = Income = wages + profits = spending = C + I + G + X - M CPI = p 1 ,t · q 1 ,b + ... + p n,t · q n,b p 1 ,b · q 1 ,b + ... + p n,b · q n,b · 100 , GDP Deflator = p 1 ,t · q 1 ,t + ... + p n,t · q n,t p 1 ,b · q 1 ,t + ... + p n,b · q n,t · 100 NGDP = p 1 ,t · q 1 ,t + ... + p n,t · q n,t , GDP = p 1 ,b · q 1 ,t + ... + p n,b · q n,t GDP = NGDP GDP Deflator 100 , Y t = Y c t + Y g t , Productivity = GDP N unemployment rate = unemployed labor force · 100 , participation rate = labor force working age pop. · 100 u 6 = unemployed + marginally attached + part time for econ reasons labor force + marginally attached · 100 S = ( Y - C - T ) + ( T - G ) = I + X - M , real rate = nominal rate - inflation rate 1

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Short answer questions (1-2 sentences!) Question 1 (7 points). Explain the difference between real and nominal interest rates. Is the interest rate on student loans a real or nominal rate? Question 2 (10 points).
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