Problem Set 1

Topics: Macroeconomics, Gross domestic product, Economics Pages: 2 (622 words) Published: December 3, 2014
Problem Set 1
Macroeconomics, ECON 2123
(Instructor: Partha Sen; TA: Peter Tsui)
------------------------------------------------------------------------------------------------------------------------------------ Posted: Friday, 19 September 2014
Due: 5:00 PM Friday, 26 September 2014
(Submit your homework into the homework collection box outside the department office)

100 marks total

Part I: True/False/Uncertain (20 marks, 4 marks each)
1. GDP is the value of all goods and services produced in the economy during a given period. 2. When disposable income equals zero, consumption equals zero. 3. The multiplier is greater than 1 if T = 0 and G = 0.

4. Paradox of saving occurs when the attempts by people to save more lead to a decline in output and an increase in saving in the short run. 5. When MPC (marginal propensity to consume) increases and investment decreases, goods market equilibrium output increases.

Part II: NATIONAL ACCOUNTS (25 marks)
For Part II, consider an artificial economy and assume the following:

1. Fill in the following table: (6 marks)
year
Output of Rice
Price (per ton of rice)

Nominal GDP
Real GDP
(in 1990 $)
Real GDP
(in 2000 $)
1990
600
1,000

2000
1800
10,000

2001
2,000
10,500

2002
2,200
11,500

2. Find the growth rate of real GDP (using 2000$ as common price) for 2001 and 2002. (Express as percentage change and round to the nearest tenth, i.e., XX.X%, hereafter in Part II). (2 marks) 3. Find the growth rate of real GDP (using 1990$ as common price) for 2001 and 2002. (Express as percentage change). (2 marks) 4. Given GDP deflator in 2000 is 100, compute inflation rate using GDP deflator (using 2000$) for 2001 and 2002. (3 marks) 5. Calculate the real GDP for 2001 in chained (2000) dollars by constructing a chain-type index, if the index for 2000 is 1. Compare them with your answers in Question 1 on real GDP for 2001 (in 2000$, i.e., not chained). Are your answers in...
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