NAME ____________________________ EMAIL: _____________________ ECON 104.5 Spring 2015 Date Due: Tues., Feb. 10 HOMEWORK 2 Important: This assignment is due at the beginning of class on Tuesday, February 10. After the assignment is collected, we will go over it as part of the review for Exam 1. You can work together; however, you are expected to write up your answers individually. If you cannot make it to class on 2/10, send your homework with a friend or turn it in early during office hours with your name and section time clearly marked. (Note: We will not accept assignments that are sent via email. No late assignments will be accepted. ) 1. Please review text, Chapter 8, and your class notes (especially from 1/29, 2/3) on calculating real and nominal GDP, the GDP deflator and inflation (percent change in the GDP deflator). 2. Suppose the simple economy of Northland produces three goods: horned helmets, long boats, and pickled herring. Over 2011, 2012 and 2013, the quantities produced and prices of these three goods are as follows: Table 1: The Economy of Northland 2011 2012 (Base Year) 2013 Price ($) Quantity ($) Price ($) Quantity ($) Price ($) Quantity ($) Horned Helmets 2.00 1000 3.00 800 4.00 900 Long Boats 4.00 200 6.00 200 6.00 300 Pickled Herring 5.00 300 6.00 500 7.00 500 a. Using the information in the table above, show how you would calculate NGDP (nominal GDP) for 2011, 2012 and 2013 (fill in the blanks below): NGDP2011 = ( $2 x 1000 ) + ( $4 x 200 ) + ( $5 x 300) NGDP2012 = ( $3 x 800 ) + ( $6 x 200 ) + ( $6 x 500 ) NGDP2013 = ( $4 x 900 ) + ( $6 x 300 ) + ( $7 x 500 ) b. Suppose the base year is 2012. Show how you would calculate real GDP (RGDP) for 2011, 2012 and 2013 (fill in the blanks below): RGDP2011 = ( $3 x 1000 ) + ( $6 x 200 ) + ( $6 x 300 ) RGDP2012 = ( $3 x 800 ) + ( $6 x 200 ) + ( $6 x 500 ) RGDP2013 = ($3 x 900 ) + ( $6 x 300 ) + ( $6 x 500 ) (over)3. Table 2: NGDP and RGDP (in billions of dollars) for the U.S. a. In the space below, write down the formula for calculating the GDP deflator (measures average prices of goods and services in the U.S.) for year x (fill in the blanks below): GDP Deflator: PYear x = ( NGDPYear x / RGDPYear x) * 100 b. Using the data in Table 2, show how you would calculate the GDP deflator for 2011, 2012 and 2013: P2011 = ($15,517/$15,020) * 100 P2012 = ($16,163/$15,369) * 100 P2013 = ($16,768/$15,710) * 100 4. Suppose the GDP deflators for the U.S. economy for 2011, 2012 and 2013 are as follows: In the space below, please show how you would calculate the rate of inflation (π), which is defined as the percentage change in the GDP Deflator/price level, from 2011 to 2012 and from 2012 to 2013: π 2012 = %Δ P 2011 to 2012 = [(105 – 103) / 103] * 100 π 2013 = % Δ P 2012 to 2013 = [(107 – 105) / 105] * 100 Year NGDP RGDP 2011 $15,517 $15,020 2012 16,163 15,369 2013 16,768 15,710 Year GDP Deflator 2011 103 2012 105 2013