Macroeconomic Assignment1

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Your answers MUST be typed.
Question 1: GDP and the CPI. Consider an economy that only produces three
commodities: bread, tractors, and haircuts. The following table shows a time series of the
quantities produced and the prices at which they were sold.
Expenditure Data
Year
Bread Tractors Haircuts
Price Quantity Price Quantity Price Quantity
2011 $100 8000 $100 500 $100 4000
2012 $120 9000 $100 500 $120 4500
2013 $100 8000 $110 600 $120 5000
We
begin by using the data to compute GDP and related measures.
• Compute the nominal GDP (NGDP) for each year.
• Compute the growth rates in NGDP.
• Compute real GDP (GDP) at 2011 prices each year.
• Compute the growth rates in GDP.
• Compute the implicit GDP deflator (P) each year.
• Compute the inflation rates in the GDP deflator.
GDP
Year Nominal GDP Real GDP GDP Deflator CPI
2011
2012
2013
Growth Rates and Inflation Rates
Year NGDP RGDP Deflator CPI
2011-2012
2012-2013
According to the Bureau of Official State Statistics, a typical household consumed 2
boules of bread and 1 haircut in 2011.
• Compute the CPI for this goods bundle for each year.
• Compute the corresponding CPI inflation rates.
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Question 2. Production Functions Consider the production function which describes
output Y from the employment of two factor inputs capital K and labour L,
Y = F (K, L) = AK αL1−α = K 0.5 L0.5 ; i.e., A = 1 and α = 0.5.
• Show that this production function has constant returns to scale.
• Use the graph paper below to plot the graph of Y for values of K between 0 and 4,
holding L constant at a value of one.
• Does this function show diminishing MPK?
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Question 3. Some Canadian Data. Statistics Canada makes a lot of recent macro
data available online for free. Starting point for finding the data:
– http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/indi02a-eng.htm –
For Canada find (some of this information may be reported directly on the page; some of
it will require you to click through to the appropriate footnote table):
• Nominal GDP (SAAR at market prices) and Real GDP (SAAR chained) for the
2nd quarter of 2015.
• Compute the percentage rate of annual growth in Real GDP between 2007 and your
observed data point.
• The GDP implicit chain price index in the 2nd quarter of 2015; compute its growth
rate since 2007.
• The exchange rate in December 2015 in $C per $US; compute the exchange rate in
$US per $C.

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