Take-Home Test 1
Take-Home Test 1
Due: Thursday, October 6, in class
1. Find quarterly data on GDP and its components and for the following components compute and draw graphs for the percentage of GDP between 1960 to 2011: a. Personal consumption expenditures b. Gross private domestic investment c. Government purchases d. Net exports e. National defense purchases f. State and local purchases g. Imports
Do you see any stable relationship in the data? Do you see any long-term trends?
2. Consider an economy that produces and consumes bread and automobiles. In the following table are data for two different years:
| |Year 2000 |Year 2010 …show more content…
|
|Good |Quantity |Price |Quantity |Price |
|Automobiles |100 |$50,000 |120 |$60,000 |
|Bread |500,000 |$10 |400,000 |$20 |
a.
Using the year 2000 as the base year, compute the following statistics for each year: - nominal GDP - real GDP - the implicit price deflator for GDP (the GDP deflator) - a fixed-weight price index such as the CPI b. What was the inflation rate between 2000 and 2010? Compare the results obtained using the GDP deflator and the CPI.
3. Suppose that an economy’s production function is Cobb-Douglas with parameter α=0.3. a. Calculate the fractions of income that capital and labor receive. b. Suppose that immigration increases the labor force by 10 percent. What happens to total output (in percentage)? What happens to the real wage (in percentage)? Explain the results you obtain intuitively. c. Suppose the capital stock increases by 10%. Explain (you don’t have to calculate) what happens to output and the real wage.
4. Consider an economy described by the following equations: Y = C + I +
G Y=5,000 G=1,000 T=1,000 C=250+0.75(Y-T) I=1,000-50r a. In this economy, compute private saving, public saving and national saving. b. Find the equilibrium interest rate c. Now suppose that G rises to 1,250. Compute private saving, public saving and national saving. d. Find the new equilibrium interest rate. Show graphically and explain how the interest rate is affected by the increase in G.
5. Assume that the velocity of money is constant. Real GDP grows by 5% per year and the money stock grows by 14% per year. If the nominal interest rate is 11% what is the real interest rate?
6. Show how an announcement by the Fed that the money supply will be increased in the future, will lead to an increase in the price level today.
7. Explain why, contrary to the layman’s view, classical economists do not believe that in the long run, inflation hurts the real buying power of working people. Why do they consider that in fact low levels of inflation could in fact be beneficial?
Due: Thursday, October 6, in class
1. Find quarterly data on GDP and its components and for the following components compute and draw graphs for the percentage of GDP between 1960 to 2011: a. Personal consumption expenditures b. Gross private domestic investment c. Government purchases d. Net exports e. National defense purchases f. State and local purchases g. Imports
Do you see any stable relationship in the data? Do you see any long-term trends?
2. Consider an economy that produces and consumes bread and automobiles. In the following table are data for two different years:
| |Year 2000 |Year 2010 …show more content…
|
|Good |Quantity |Price |Quantity |Price |
|Automobiles |100 |$50,000 |120 |$60,000 |
|Bread |500,000 |$10 |400,000 |$20 |
a.
Using the year 2000 as the base year, compute the following statistics for each year: - nominal GDP - real GDP - the implicit price deflator for GDP (the GDP deflator) - a fixed-weight price index such as the CPI b. What was the inflation rate between 2000 and 2010? Compare the results obtained using the GDP deflator and the CPI.
3. Suppose that an economy’s production function is Cobb-Douglas with parameter α=0.3. a. Calculate the fractions of income that capital and labor receive. b. Suppose that immigration increases the labor force by 10 percent. What happens to total output (in percentage)? What happens to the real wage (in percentage)? Explain the results you obtain intuitively. c. Suppose the capital stock increases by 10%. Explain (you don’t have to calculate) what happens to output and the real wage.
4. Consider an economy described by the following equations: Y = C + I +
G Y=5,000 G=1,000 T=1,000 C=250+0.75(Y-T) I=1,000-50r a. In this economy, compute private saving, public saving and national saving. b. Find the equilibrium interest rate c. Now suppose that G rises to 1,250. Compute private saving, public saving and national saving. d. Find the new equilibrium interest rate. Show graphically and explain how the interest rate is affected by the increase in G.
5. Assume that the velocity of money is constant. Real GDP grows by 5% per year and the money stock grows by 14% per year. If the nominal interest rate is 11% what is the real interest rate?
6. Show how an announcement by the Fed that the money supply will be increased in the future, will lead to an increase in the price level today.
7. Explain why, contrary to the layman’s view, classical economists do not believe that in the long run, inflation hurts the real buying power of working people. Why do they consider that in fact low levels of inflation could in fact be beneficial?