1. You are given the following information about an economy over the five-year period 2001-2005. All GDP values are in billions of dollars, the population (pop'n) figures are in millions. Consider 2000 as a base year.
|
Year
|
Current dollar GDP
|
GDP Deflator
|
Constant dollar GDP
|
Pop'n
|
|
2001
|
551.6
|
104.7
|
???
|
101.9
|
|
2002
|
605.9
|
???
|
553.0
|
103.1
|
|
2003
|
649.9
|
114.8
|
566.1
|
102.4
|
|
2004
|
???
|
118.6
|
563.1
|
101.7
|
|
2005
|
674.4
|
121.8
|
???
|
102.3
|
A. Fill in the missing entries in the table. Show your steps.
B. Current-dollar GDP increased by 9.84 percent between 2001 and 2002. Calculate the percentage increases in constant-dollar (real) income and in the GDP deflator. Why doesn't the sum of the two percentages equal the percentage increase in nominal GDP?
C. Calculate the growth rate in real GDP per capita for 2001-2002 and 2004-2005. Which of the two periods is likely to represent a recessionary phase of the economy?
2. Suppose that the government's data collection agency has estimated the prices of six broad groups of consumer expenditure as well as the average proportions of consumers' income that is spent on these expenditure groups as follows:
|
|
Prices (base year)
|
Prices (next year)
|
Proportion of income consumers spend (on average)
|
|
Shelter
|
$3000
|
$3300
|
30%
|
|
Food
|
2500
|
2500
|
25
|
|
Transportation
|
5000
|
5000
|
15
|
|
Clothing
|
100
|
110
|
10
|
|
Entertainment
|
60
|
60
|
10
|
|
Other
|
300
|
330
|
10
|
a. Compute the average price level in the base year and the next year. (Assume that proportions do not change)
b. The price index for the base year, by definition, is 100. Compute the price index for the next year.
c. You may have noticed that the price of shelter, clothing, and other goods increased by 10 percent each. Does your answer to b) indicate a 10 percent increase in the price index from the base year? Why or why not?