Q: Suppose in 2015, the price of milk is $$5 and 250 quarts are sold, while the price of honey is 5 $$and 200 quarts are sold. What is the nominal GDP for 2015?

$$5 \times 250 + 5$$ \times 200 = $$1250 + 1000$$ = $$2250$$

Q: Using 2013 as the base year (milk: $$2, honey: 2$$), what is the real GDP for 2015 if 250 quarts of milk and 200 quarts of honey are sold?

$$2 \times 250 + 2$$ \times 200 = $$500 + 400$$ = $$900$$

Q: Given nominal GDP of $$2250 and real GDP of 900 in 2015 ($$using 2013 as the base year), what is the GDP deflator for 2015?

$$\frac{2250}{900} \times 100 = 250$$

Q: If the GDP deflator was 100 in 2013 and 150 in 2014, what was the inflation rate from 2013 to 2014?

$$\frac{150 - 100}{100} \times 100 = 50\%$$

Q: In Letterkenny, there are 3,500 employed, 500 unemployed, and 1,000 not in the labor force. What is the unemployment rate?

$$\frac{500}{3500 + 500} \times 100 = 12.5\%$$

Q: Using the same Letterkenny data, what is the labor-force participation rate?

$$\frac{3500 + 500}{3500 + 500 + 1000} \times 100 = \frac{4000}{5000} \times 100 = 80\%$$

Q: Given a basket of 100 quarts of milk and 50 quarts of honey, and 2013 prices of $$1 (milk) and 2 ($$honey), what is the cost of the basket in 2013?

$$1 \times 100 + 2$$ \times 50 = $$100 + 100$$ = $$200$$

Q: Using 2013 as the base year, if in 2014 the price of milk is $$2 and honey is 3$$, what is the cost of the basket (100 quarts milk, 50 quarts honey) in 2014?

$$2 \times 100 + 3$$ \times 50 = $$200 + 150$$ = $$350$$

Q: What is the Consumer Price Index (CPI) in 2014, using 2013 as the base year and your previous answers?

$$\frac{350}{200} \times 100 = 175$$

Q: If the CPI in 2014 is 175 and in 2015 is 250, what is the inflation rate from 2014 to 2015?

$$\frac{250 - 175}{175} \times 100 = 42.86\%$$

Question 1

Suppose in 2015, the price of milk is $$5 and 250 quarts are sold, while the price of honey is 5 $$and 200 quarts are sold. What is the nominal GDP for 2015?

Accepted Answer

$$5 	imes 250 + 5$$ 	imes 200 = $$1250 + 1000$$ = $$2250$$

Question 2

Using 2013 as the base year (milk: $$2, honey: 2$$), what is the real GDP for 2015 if 250 quarts of milk and 200 quarts of honey are sold?

Accepted Answer

$$2 	imes 250 + 2$$ 	imes 200 = $$500 + 400$$ = $$900$$

Question 3

Given nominal GDP of $$2250 and real GDP of 900 in 2015 ($$using 2013 as the base year), what is the GDP deflator for 2015?

Accepted Answer

$$\frac{2250}{900} 	imes 100 = 250$$

Question 4

If the GDP deflator was 100 in 2013 and 150 in 2014, what was the inflation rate from 2013 to 2014?

Accepted Answer

$$\frac{150 - 100}{100} 	imes 100 = 50\%$$

Question 5

In Letterkenny, there are 3,500 employed, 500 unemployed, and 1,000 not in the labor force. What is the unemployment rate?

Accepted Answer

$$\frac{500}{3500 + 500} 	imes 100 = 12.5\%$$

Question 6

Using the same Letterkenny data, what is the labor-force participation rate?

Accepted Answer

$$\frac{3500 + 500}{3500 + 500 + 1000} 	imes 100 = \frac{4000}{5000} 	imes 100 = 80\%$$

Question 7

Given a basket of 100 quarts of milk and 50 quarts of honey, and 2013 prices of $$1 (milk) and 2 ($$honey), what is the cost of the basket in 2013?

Accepted Answer

$$1 	imes 100 + 2$$ 	imes 50 = $$100 + 100$$ = $$200$$

Question 8

Using 2013 as the base year, if in 2014 the price of milk is $$2 and honey is 3$$, what is the cost of the basket (100 quarts milk, 50 quarts honey) in 2014?

Accepted Answer

$$2 	imes 100 + 3$$ 	imes 50 = $$200 + 150$$ = $$350$$

Question 9

What is the Consumer Price Index (CPI) in 2014, using 2013 as the base year and your previous answers?

Accepted Answer

$$\frac{350}{200} 	imes 100 = 175$$

Question 10

If the CPI in 2014 is 175 and in 2015 is 250, what is the inflation rate from 2014 to 2015?

Accepted Answer

$$\frac{250 - 175}{175} 	imes 100 = 42.86\%$$

Question 11

Your mother earned $45,000 in 1991. If the CPI was 136 in 1991 and 240 in 2016, what is her 1991 salary in 2016 dollars?

Accepted Answer

$$45,000 	imes \frac{240}{136} = 79$$,412$

Question 12

If real GDP per capita grows at 2.25% per year, how many years will it take to double? (Use the Rule of 70)

Accepted Answer

$$\frac{70}{2.25} \approx 31.1$$ years

Question 13

If GDP grew at 2.0%, 3.0%, 3.5%, and 2.5% over four years, what is the average annual growth rate?

Accepted Answer

$$\frac{2.0 + 3.0 + 3.5 + 2.5}{4} = 2.75\%$$

Question 14

In the economy of Asgard, GDP is $$500 million, consumption is 350 $$million, investment is $$100 million, government purchases are 50 $$million, taxes are $$75 million, and transfer payments are 40 $$million. What is public saving?

Accepted Answer

$$75 - 50 - 40 = -15$$ million

Question 15

Using the same Asgard data, what is private saving?

Accepted Answer

$$500 - 350 - 50 - 75 + 40 = 65$$ million

Question 16

If the government increases its spending without increasing taxes, what is the likely effect on the market for loanable funds?

Accepted Answer

The supply of loanable funds decreases, leading to higher interest rates and crowding out private investment.

Question 17

Suppose the cost of a fixed basket of goods was $$200 in 2013 and 350 in 2014. $$What is the CPI in 2014 using 2013 as the base year?

Accepted Answer

$$\frac{350}{200} 	imes 100 = 175$$

Question 18

If the inflation rate is calculated as $$\frac{CPI_{new} - CPI_{old}}{CPI_{old}} 	imes 100$$, what is the inflation rate if the CPI rises from 175 to 250?

Accepted Answer

$$\frac{250 - 175}{175} 	imes 100 = 42.86\%$$

Question 19

If the government runs a budget deficit, what happens to public saving?

Accepted Answer

Public saving becomes negative.

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