Problem_Set_1

# Problem_Set_1 - Problem Set 1 1(30 points Below are some...

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Problem Set 1 1. (30 points) Below are some data from the land of milk and honey. EXPLAIN YOUR ANSWERS WELL. SHOW ALL EQUATIONS YOU USED IN CALCULATIONS. Year Price of milk Quantity of milk Price of Honey Quantity of Honey 2010 \$1 100 quarts \$2 100 quarts 2011 \$1 200 \$2 200 2012 \$2 300 \$4 250 a. Compute nominal GDP, real GDP, and the GDP deflator for each year, using 2010 as the base year. Nominal GDP 2010 = (\$1 x 100 quarts) + (\$2 x 100 quarts) = \$300 Nominal GDP 2011 = (\$1 x 200 quarts) + (\$2 x 200 quarts) = \$600 Nominal GDP 2012 = (\$2 x 300 quarts) + (\$4 x 250 quarts) = \$1,600 Real GDP 2010 = (\$1 x 100 quarts) + (\$2 x 100 quarts) = 300 Real GDP 2011 = (\$1 x 200 quarts) + (\$2 x 200 quarts) = 600 Real GDP 2012 = (\$1 x 300 quarts) + (\$2 x 250 quarts) = 800 GDP Deflator 2010 = (300/300) x 100 = 100 GDP Deflator 2011 = (600/600) x 100 = 100 GDP Deflator 2012 = (1600/800) x 100 = 200

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b. Compute the percentage change (growth rate for GDP and inflation for GDP deflator) in nominal GDP, real GDP, and GDP deflator in 2011 and 2012 from the preceding year. For each year, identify which one of these variables that does not change (zero growth rate or zero inflation).
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• Fall '10
• staff
• Inflation, gross domestic product, \$65, GDP deflator, \$1.7, \$1.3

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