Quiz 3-
1. a. Jason buys $100 worth of groceries including a $20 bottle of wine produced in Chile, a $5 block of cheese produced in France, and a $2 box of crackers made in Canada. In addition he buys a home for $200,000 that was constructed in 1990 and prior to moving in this year he remodels the kitchen and spends $50,000 on this new residential construction. Jason's activities will:
i. (Not change, increase, decrease) consumption expenditure in this year's GDP by __________________.
ii. (Not change, increase, decrease) investment expenditure in this year's GDP by _____________________.
iii. (Not change, increase, decrease) government expenditure in this year's GDP by _____________________.
iv. (Not change, increase, decrease) exports in this year's GDP by ____________.
v. (Not change, increase, decrease) imports in this year's GDP by ________________.
b. Jason's total contribution to GDP this year, given the above information, is _____________.
2. Use the following information to answer this set of questions. Assume the information given below describes an economy that produces three goods: jackets, bike helmets, and grilled cheese sandwiches. The government of this economy defines the market basket for purposes of computing the CPI as a market basket composed of 5 jackets, 2 bike helmets, and 10 grilled cheese sandwiches. For full credit, provide any necessary formulas and show your work. If necessary round your answers to two places past the decimal.
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Prices in 2010
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Quantities in 2010
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Prices in 2011
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Quantities in 2011
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Jackets
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$20
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10
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$25
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15
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Bike Helmets
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$50
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10
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$30
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12
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Grilled Cheese Sandwiches
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$1
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100
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$2
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90
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a. The nominal GDP in 2010 equals _____________.
b. The nominal GDP in 2011 equals ________________.
c. The real GDP in 2010 with base year 2011 equals ______________ .
d. The real GDP in 2011 using 2011 as the base year equals _____________ .
e. The GDP deflator in 2010 using 2011 as the base year equals ________ on a one point scale.
f. The CPI for 2010 with 2010 as the base year equals _____________ on a one hundred point scale.
g. The CPI for 2011 with 2010 as the base year equals _________ on a one hundred point scale. (Round to the nearest whole number.)
h. Based on the CPI, what is the rate of inflation between 2010 and 2011?
i. Provide a verbal interpretation of the numeric value you provided in (h).
3. Suppose there are 100,000 people in Funland. Of these 100,000 people 10,000 are either too young or too old to work. In addition, there are 20,000 people in the military. Of the remaining population 20,000 people are employed full-time, 5, 000 people are employed part-time but wish to work full-time, 8,000 people are underemployed, and 7,000 people work for 15 or more hours per week without pay at family owned businesses. In this economy there are also 10,000 full-time students, 10,000 people currently not working but actively seeking employment after graduating from school, 5,000 people currently not working because of a binding minimum wage but who are actively seeking work, and the remaining part of the population is cyclically unemployed.
Given this information:
a. What is the unemployment rate in Funland? Carry your answer to one place past the decimal.
b. What is the frictional unemployment rate in Funland? Carry your answer to one place past the decimal.
c. What is the structural unemployment rate in Funland? Carry your answer to one place past the decimal.
d. What is the cyclical unemployment rate in Funland? Carry your answer to one place past the decimal.