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Calculate the level of output for ten years

Assignment Help Microeconomics
Reference no: EM131025277

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

 

 

 

1990

 

 

 

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.

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

 

 

 

1990-2000

 

 

 

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

 

 

 

1990

 

 

 

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

 

 

 

 

1994-1996

 

 

 

 

1996-1998

 

 

 

 

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

 

 

 

 

2

 

 

 

 

3

 

 

 

 

4

 

 

 

 

5

 

 

 

 

6

 

 

 

 

7

 

 

 

 

8

 

 

 

 

9

 

 

 

 

10

 

 

 

 

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?

Reference no: EM131025277

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