1. Here Are Some Data for an Economy

NAME__KEY______

ECON 2630: Assignment 1 This assignment is worth 22 points and is due at the beginning of class on Wednesday, 7/11. Late assignments will NOT be accepted. ENJOY THE QUESTIONS!

1. Here are some data for an economy.

(3) Use the table above to calculate GDP. Show your calculations:

(2) GDP = __C + I + G+X-M = 600 + 300 + 330 +120 – 150 = 1200______

2. Suppose a country (Cowistan) produces only three goods, beef, milk, and leather. Use the following information on their production and prices to answer the following questions.

Q2013Q2014P2013P2014

Beef 800 860 $90$95

Milk 1,0001,200 $15$15

Leather 70 75 $50$52

a. (2) Calculate Cowistan’s nominal GDP in 2013 and 2014.

Nominal GDP in 2009 = _800 * $90 + 1,000 * $15 +70*$50 = $90,500______.

Nominal GDP in 2013 = __860 * $95 + 1,200 * $15 +75*$52 = $103,600______.

b. (1) Using 2013 as the base year, calculate Cowistan’s real GDP in 2014.

860 * $90 + 1,200 * $15 +75*$50 = $99,150

c. (1) Calculate the percentage change in nominal GDP and real GDP from 2013 to 2014.

Percent change in nominal GDP = _13,100/90,500*100=14.5%______.

Percent change in real GDP = __8,650/90,500*100=9.6%______.

3. (3) Go to

Use table 1.1.5 (Gross Domestic Product) and table 1.1.6 (Chained Gross Domestic Product) to answer the following questions (Note: ‘Chained’ means ‘Real’)

Calculate the percentage change Gross Domestic Product from Q1 2012 to Q1 2014.

17,016.0 - 16,041.6 = 974.4/16,041.6*100= 6.0%

Calculate the percentage change in Chained Gross Domestic Product from Q1 2012 to Q1 2014.

15,824.2 - 15,381.6 = 442.6/15,381.6*100 = 2.9%

Given these calculations, what do you know is true regarding inflation between Q1 2012 to Q1 2014?

Inflation is equal to the difference in the percentage change in nominal GDP and real GDP, so it was equal to 3.1% during this period.

4. (6) Go to Check the boxes for “US Nominal GDP” and “US Real GDP.” Enter “2000” for the initial year and “2010” for the ending year.

a.) In what year did Nominal GDP increase from the previous year but Real GDP declined?

2008

b.)What does this imply happened to output and the price level in this year?

It means inflation was higher than the percentage increase in nominal output (output decreased while prices increased)

Go back and check the box for “US Real GDP Per Capita.” Enter “1920” for the initial year and “2013” for the ending year.

c.)What was real GDP per capita in 1920? 6979.4

d.)What was real GDP per capita in 2010? 49,797.0

Given all the criticism around GDP as a measure of a nation’s well being many have argued for an alternative measure. The major alternative measure currently comes from the “Human Development Index”. Go to:

e.)What is the current HDI ranking of the U.S.? 3rd

f.)What is the current “inequality adjusted” HDI ranking of the U.S (Note: this is reported in “Table 3 – Inequality-adjusted Human Development Index”)? 16th

5) (2) Use the “rule of 70” to calculate what real GDP per capita will be in the countries in 140 years:

A: Per capita income = $3,000; growth rate = 2%;

GDP per capita will double every 35 years, so it will double 4 times in 140 years. This means that GDP will be $3,000*2=$6,000*2=$12,000*2=$24,000*2=$48,000.

B: Per capita income = $1,000; growth rate = 3%;

GDP per capita will double every 23.3 years, so it will double 6 times in 140 years. This means that GDP will be $1,000*2=$2,000*2=$4,000*2=$8,000*2=$16,000*2=$32,000*2=$64,000.

6) (3) Use the formula for compound interest (FutureValue = PresentValue*(1+r)t) to calculate the following:

A: The value of a $10,000 investment (present value) with an interest rate (r) of 6%in t=30 years.

FV = $10,000*(1.06)30=$57,434

B: The value of a $10,000 investment with an interest rate of 6%in 40 years.

FV = $10,000*(1.06)40=$102,857

C: The value of a $3,000 investment with an interest rate of 2% in 140 years.

FV = $3,000*(1.02)140=$47,989.40

(Note: This is same approximate value as in 5A. $3,000 also happens to be what U.S. real GDP per capita was in 1870)