Section 1: Short answer essay (add space as needed)

1. In recent years the states of Washington and Colorado have legalized marijuana. While marijuana remains illegal at the federal level, these states have stopped enforcing federal marijuana laws and have allowed individuals to purchase and sell marijuana in the market place. In doing so the states have brought one underground market to the surface. At the same time these states impose heavy taxes upon the drug. How would you expect the GDPs of these two states to change in the face of such countervailing policies?

2. During the republican presidential debate on September 16, 2015 presidential candidate Ben Carson proposed a novel idea. Dr. Carson suggested that the minimum wage should be indexed, assume to the CPI. If so indexed, the minimum wage would increase automatically over time as inflation erodes the purchasing power of money. Given the biases in the CPI, however, what problems might arise in the future, or what objections might be raised to such a policy? Stick to economic arguments.

3. During a recent meeting of the Federal Reserve Board of Governors, the Fed decided not to raise interest rates. It was deemed that the national economy was still weak and that inflation pressures were not strong. Suppose the Fed was wrong, however, and inflation began to rise unexpectedly. How might this be good for college students but bad for retirees?

Section 2: Working with GDP

1. Given the information above:

A. Calculate nominal GDP in 2012 and 2013.

B. Calculate real GDP growth from 2012 to 2013. Use 2013 as the base year.

C.     What is the value of the GDP deflator for 2012? Use 2013 as the base year.

D.      

Section 3: Working with the CPI

1. Consider the table below. Note: the base year is 1997.

a. Fill in the table below by calculating the real average hourly wage.

b. What was the growth rate of real average hourly wages from 2008 to 2012?