Economics 111 - Principles of Economics - Accelerated Treatment - Problem Set 7

Q1. Which of the following are microeconomic issues? Which are macroeconomic issues?

a) The causes of inflation in a very small country.

b) The determinants of investment spending by the General Motors Corporation.

c) The causes of the decline in US interest rates during the early 1990s.

d) The decision of Citibank to lower credit card interest rates in the early 1990s.

e) The impact of introducing the new product Nutrasweet on employment in the US sugarrefining industry.

Q2. Which of the following transactions would be included in the gross domestic product? For those included, indicate whether they count as C, I, G, or net exports. For those not included, explain why not. (Unless otherwise stated, assume all buyers and sellers are domestic).

a) The purchase of a personal computer by a household.

b) The purchase of a personal computer by a used car dealership to keep track of sales.

c) The purchase of a used car from your neighbor.

d) The salary of the Mayor of New York City.

e) The purchase of 100 shares of General Motors stock by a household.

f) An increase in General Motor's inventory of unsold automobiles.

g) An unemployment insurance payment received by an unemployed autoworker.

h) The purchase of 100,000 paper clips by IBM, all of which are used by office workers during the year.

i) The purchase of a Northrop jet fighter by the US Air Force.

j) The deposit of $1,000 into your bank account.

k) The donation of $100 worth of used clothing to a charity.

l) The purchase of American-produced wine by a Japanese importer.

m) The purchase (by an American household) of an automobile produced by a Japanese-owned automobile company operating on American soil.

n) The purchase (by an American household) of an automobile produced by an American auto manufacture, but using many parts produced in Japan.

Q3. Suppose you borrowed $200 one year ago and must now repay $210. The inflation rate over the year was 7 percent.

a) What is the nominal interest rate on this loan?

b) What is the real interest rate on this loan?

Q4. In April 1991, US private sector workers earned an average of $10.28 per hour. By April 1992, this figure had increased to $10.54. Over the same period, consumer prices increased by 3.2 percent (according to the CPI). Find the percentage change in the real wage rate over this twelve month period.