Homework #1
1. For this question assume that this economy produces only three kinds of goods: bikes, refrigerators, and chairs. The table below provides data on the sales and prices for these three goods for three different years.
|
Year
|
Number of Bikes Sold
|
Price per Bike
|
Number of Refrigerators Sold
|
Price per refrigerator
|
Number of Chairs Sold
|
Price per Chair
|
|
1980
|
1000
|
$100
|
1050
|
$600
|
150
|
$70
|
|
1990
|
1500
|
$200
|
1500
|
$400
|
400
|
$50
|
|
2000
|
2000
|
$350
|
5000
|
$200
|
250
|
$80
|
a. Using an Excel spreadsheet complete the following table:
|
Year
|
Nominal GDP
|
Real GDP using 1980 as the Base Year
|
Real GDP using 2000 as the Base Year
|
|
1980
|
|
|
|
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1990
|
|
|
|
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2000
|
|
|
|
b. Calculate the GDP deflator using first 1980 as the base year and then 2000 as the base year. Collect your findings in the following table.
|
Year
|
GDP deflator using 1980 as the base year
|
GDP deflator using 2000 as the base year
|
|
1980
|
|
|
|
1990
|
|
|
|
2000
|
|
|
c. From the data you gathered in part (a), complete the following table. Hint: you may find it convenient to do this using Excel as well.
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Period
|
Percentage Change in Nominal GDP
|
Percentage Change in Real GDP Using 1980 as the Base Year
|
Percentage Change in Real GDP Using 2000 as the Base Year
|
|
1980-1990
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|
|
|
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1990-2000
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|
|
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d. Examine your answers to part (c). Does it matter whether you use 1980 or 2000 as the base year when you compute the percentage change in real GDP? Provide an explanation to support your findings.
2. Use the date provided in question (1) to answer this question. Suppose the CPI is calculated using a market basket composed of 100 bikes, 200 refrigerators, and 40 chairs.
a. Calculate the CPI three times: the CPI with the base year 1980; the CPI with the base year 1990; and the CPI with the base year 2000. Enter your calculations in the following table. Hint: once again you might find it fun to do this with Excel.
|
Year
|
CPI with Base Year 1980
|
CPI with Base Year 1990
|
CPI with Base Year 2000
|
|
1980
|
|
|
|
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1990
|
|
|
|
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2000
|
|
|
|
b. Now, calculate the rate of inflation between 1980 and 1990 and between 1990 and 2000 using the different base years. Summarize your findings in the following table.
|
Period
|
Rate of Inflation with Base Year 1980
|
Rate of Inflation with Base Year 1990
|
Rate of Inflation with Base Year 2000
|
|
1980-1990
|
|
|
|
|
1990-2000
|
|
|
|
3. You are given the following data.
|
Year
|
Nominal GDP (PY)
|
P
|
Real GDP (Y)
|
|
1990
|
100
|
2
|
50
|
|
1992
|
110
|
2.25
|
48.89
|
|
1994
|
120
|
2.5
|
48.00
|
|
1996
|
125
|
2.6
|
48.08
|
|
1998
|
130
|
2.5
|
52.00
|
a. Fill in the following table. Note: you will find this very easy and quick if you use Excel.
|
Period
|
Percentage Change in Nominal GDP
|
Percentage Change in the Price Level
|
Percentage Change in Real GDP
|
Sum of Percentage Change in the Price Level plus the Percentage Change in Real GDP
|
|
1990-1992
|
|
|
|
|
|
1992-1994
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|
|
|
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1994-1996
|
|
|
|
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1996-1998
|
|
|
|
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b. Inspect your findings. Is there a relationship between the column titled "Percentage Change in Nominal GDP" and the column titled "Sum of Percentage Change in the Price Level plus the Percentage Change in Real GDP"? Describe this relationship.
4. Suppose output grows at 10% a year while labor grows at 4% a year. Suppose that output initially equals 100 units (measured as $100) and labor is initially 20 units.
a. Using Excel calculate the level of output for ten years and the level of labor for 10 years. Then using this data, calculate labor productivity. Put this information in the following table.
|
Year
|
Output
|
Labor (measured as units of labor)
|
Labor Productivity (measured as $/unit of labor)
|
Annual Growth Rate of Labor Productivity (measured as a percent)
|
|
1
|
|
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2
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3
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4
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5
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6
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7
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8
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9
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|
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10
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|
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b. Examine your findings from part (a): although you calculated the annual growth rate of labor productivity in part (a), was there an alternative way you could have arrived at an approximation of your answer?