ECON346 Homework 1 - Consider the following economy

Intermediate Macroeconomics

Econ 346 Homework 1:

1) Consider the following economy with only three goods: Year 2010 2011 Q milk 5000 6000 Q apples 3000 4000 Q computers 500 600 P milk 1 1.2 P apples 0.9 0.8 P computers 300 400

a) Assume that the three goods are produced and consumed within the domestic economy and calculate the nominal GDP and the real GDP using 2010 as the base year for both periods.

b) What is the inflation rate in 2011 as measured by the GDP deflator?

c) Calculate the inflation rate in 2011 based on a consumer basket which is given by the quantities consumed in 2010.

d) How do your answers to parts b and c change if computers are not produced within the domestic economy but imported?

e) How do your answers to parts b and c change if computers are not sold within the domestic economy but only exported?

2) Consider for following economy containing only 2 goods: Cars Quantity Price 2010 10 2000 2011 12 3000 2012 10 4000 Quantity 4 6 8 Computers Price 1000 500 500

a) Calculate nominal and real GDP for this economy (use 2010 as the base year.) Interpret the change in nominal GDP and in real GDP over time. Are the impacts of prices or quantities greater on nominal GDP?

b) Calculate the inflation rate between 2010 and 2011 and between 2011 and 2012 using the GDP deflator.

 c) Consider now a consumer basket consisting of the quantities consumed in 2010. Calculate the inflation rate between 2010 and 2011 and between 2011 and 2012 using the CPI.

d) Why do your results in parts b and c differ? Explain the difference between a Paasche and a Laspeyres index.

3) An economy has three firms operating with the following costs and outputs:

Firm A Imports of intermediate goods Wages Dividends Costs 100 600 200 Sale of final goods Exports Output 400 500 Firm B Imports of intermediate goods Wages Dividends Repayment of debt Costs 100 300 200 50 Output Sale of intermediate 400 goods Exports 250 Firm C Imports of intermediate goods Purchases of intermediate goods Wages Dividends Repayment of debt Costs 50 400 Sale of final goods Exports Output 800 300 450 120 80

Assume additionally that all workers of these firms live within the economy and that the firms are indebted to resident banks. It is also known that resident shareholders hold 75% of firm A, 50% of firm B, and 83.3% of firm C. Moreover, residents of the economy receive primary incomes of $250 from abroad.

Calculate the GDP of this economy.

Calculate the GNP of this economy.

What happens to GDP if Firm A exports $200 at the direct expense of Firm B?

What happens to GNP if Firm A exports $200 at the direct expense of Firm B?

4) In December of 2018, labor in County Z was composed in the following manner: Full time regulated workers over 18 years old Part time regulated workers over 18 years old Full time workers paid cash (not paying taxes) Full time home caretakers (i.e. adults staying at home with children) Retired individuals Students in school full time (not working for wages) Adults unemployed and actively seeking work Adults unemployed who have given up searching for work Adults receiving disability benefits who are unable to work Full time regulated workers between 16-18 years old Part time regulated workers between 16-18 years old

120.2 million 20.0 million 10.5 million 31.8 million 25.3 million 13.2 million 6.9 million 1.5 million 9.3 million 0.9 million 1.1 million

What is the size of the labor force?

What is the labor force participation rate?

What is the unemployment rate?

 What are three disadvantages of the unemployment rate as it is measured by the BLS?