1. According to the textbook, natural scientists often conduct research via controlled experiments, whereas macroeconomists typically rely on natural experiments.
a. What is a controlled experiment, and how does it differ from a natural experiment?
b. Why are controlled experiments considered to be preferable for scientific research?
c. Why can't macroeconomists typically perform controlled experiments?
2. How often does the price you pay for a haircut change? What does your answer imply about the usefulness of market-clearing models for analyzing the market for haircuts?
3. Use the table below to answer the following questions:
a. Nominal GDP in any year is calculated by multiplying the quantity of each final product sold by its price an summing over all final goods and services. Algebraically, this can be written as where and represent the price and quantity sold of the ith final good or service.
Assuming that all computers and automobiles are final goods, calculate nominal GDP in 2000 and in 2010.
b. Calculate real GDP in 2010 using 2000 as the base year.
c. Calculate the percentage change in real GDP between 2000 and 2010 using 2000 as the base year.
d. Calculate real GDP in 2000 and 2010 using 2010 as the base year.
e. Calculate the percentage change in real GDP between 2000 and 2010 using 2010 as the base year.
f. Explain why your answers to Parts c and e where different.
4. Use the table below to answer the following questions:
a. Using the year 2000 as the base year, compute the following statistics for each year: nominal GDP, real GDP, the implicit price deflator for GDP, and a fixed-weight price index such as the CPI
b. How much have prices risen between 2000 and 2010? Compare the answers given by the Laspeyres and Passche price indexes. Explain the difference
c. Suppose you are a senator writing a bill to index Social Security and federal pensions. That is, your bill will adjust these benefits to offset changes in the cost of living. Will you use the GDP deflator or the CPI? Why?