Problem 1. For each of the following scenarios determine the effect on GDP of the described event. Then, explain the reasoning behind your answer.
a. Tim's Bikes produces 1000 Bikes in 2014 and sells 700 of these Bikes in 2014 for a price of $200 per bike. In 2015 Tim's Bikes produces another 1000 bikes and sells 1300 Bikes in 2015 for a price of $200 per bike. What was the impact of Tim's Bikes on GDP in 2014 and 2015? Explain your answer.
b. Susie raises goats on a 50 acre plot outside of Madison, WI. In 2015 she decides to sell 25 acres of her goat farm to a neighbor. The price per acre for this transaction is $2,000. What is the impact of this transaction on GDP in 2015? Explain your answer.
c. Michelle sold her "app" to Google in 2012 and was hired by Google to facilitate getting this app up and running on the Google platform. As part of her compensation package she also received 100 shares of Google stock. In 2014 she sold 50 of these shares to Bob for $50 a share. What was the impact of Michelle's selling of this stock on GDP in 2014? Explain your answer.
d. Michael changes the oil in his car every six months as does his neighbor Millie. At the beginning of2013 Michael incorporates anoil change business and starts providing these services professionally. Millie is one of his first customers and she pays him $20 twice a year to change the oil in her car. In addition, Millie contracts with Michael to rotate her car's tires once a year for an additional $30. Given Michael and Millie's actions, what is the impact on GDP in 2013 from these events?
e. Both Jason and Miranda in 2014 opened an after-school childcare facility. Jason's enterprise is not licensed and is strictly a word-of-mouth, cash operation. Jason has six children who come to the facility for $25 per child per week. Jason's center is open for 36weeks a year. Miranda's facility is a licensed provided of care for young children. She currently has 15 children that come to the facility at a cost of $30 per child per week. The center is open for 36 weeks a year. What was the effect of Jason and Miranda's activities on GDP in 2014?
f. Elizabeth has a vintage car that has been in her family for 60 years. A recent appraisal of the car noted that it was worth $60,000 due to its age and uniqueness. In 2015 she realized that the car needed some repair and refinishing after all these years of use. She took the car to "Hotrod Betsy", a local vintage car restorer, who repaired and refinished the car. Hotrod Betsy charged Elizabeth $6000 (including a sales tax of $330) for this work. What was the contribution to GDP in 2015 from these activities?
Problem 2. Suppose you are told that in the economy of McKeiverville that rent payments for land resources are equal to $2000 million in 2015, interest payments for capital are equal to $750 million in 2015, consumer expenditures on goods and services are equal to $1800 million in 2015, profits are equal to $250 million in 2015, investment spending is equal to $800 million in 2015 and net exports are equal to $200 million in 2015. You also know that in McKeiverville in 2015 that wage income was 20% of the amount spent by the government on goods and services during 2015. Determine the level of GDP in McKeiverville in 2015, the level of wage income in 2015, and the level of government spending in 2015. In determining these levels verbally describe how you are finding these answers and in your verbal description make specific reference to the definition(s) of GDP you are using to find the answers.
Problem 3. You are told the following information about the economy of Denville. Worth Brick a company located in Denville produced $1 million worth of bricks in 2015 and sold $1.2 million of brick as final goods to consumers in Denville. Worthy Brick was able to sell this much brick by drawing down their inventories. In addition, in 2015 an additional $200,000 worth of bricks were sold to consumers located outside of Denville. Consumers in this economy during 2015 make purchases of $2.75 million on goods and services. Included in these purchases are purchases of $400,000 of fine British wool (produced in 2015 in Great Britain and not produced in Denville), and $175,000 worth of bananas grown in Costa Rica. Consumers in Denville also purchase $3,000,000 worth of newly constructed homes during 2015. In 2015 government purchases in Denville totaled $750,000. There is no other data to consider when computing the GDP of Denville for 2015. For each question below show how you got your numerical value.
a. Given the above data, what is the level of consumer expenditure in Denville in 2015?
b. Given the above data, what is the level of government expenditure in Denville in 2015?
c. Given the above data, what is the level of investment expenditure in Denville in 2015?
d. Given the above data, what is the level of imports to Denville in 2015?
e. Given the above data, what is the level of exports to Denville in 2015
f. Given the above data, what is the level of GDP in Denville in 2015?
Problem 4. Consider the community of Clarkville. There are six hundred people who live in Clarkville and your task is to answer the following set of questions based on the information below:
- In Clarkville there are 90 people who are less than 16 years old
- In Clarkville there are 40 people who are over 70 years old and are fully retired
- In Clarkville there are 60 people who are currently not working, are available to work, and have submitted job applications during the past four weeks
- In Clarkville there are 40 people who are currently not working, are available to work, but who have given up submitting job applications because they do not believe there is any work to be had in Clarkville
- In Clarkville there are 70 full-time college students who are not currently seeking work
- In Clarkville there are 140 people who are working part-time but who would like to work full-time
- The rest of the Clarkville population is over 16 years old and currently working
In your answers round to the nearest tenth of a percent when calculating the percent value.
a. What is the number of employed people in Clarkville? Explain how you got your answer.
b. What is the number of unemployed people in Clarkville? Explain how you got your answer.
c. What is the labor force equal to in Clarkville?
d. What is the unemployment rate in Clarkville? Show how you found your answer.
e. How would the unemployment rate change in Clarkville if discouraged workers were counted as unemployed workers? Verbally describe how the unemployment rate would change and then calculate a numeric value based on this change in the definition of unemployment.
f. How would the unemployment rate change in Clarkville if part-time workers were counted as unemployed workers rather than employed workers? Verbally describe how the unemployment rate would change and then calculate a numeric value based on this change in the definition of unemployment.
Problem 5. For each of the following scenarios decide whether the person is employed or unemployed. Explain the reasoning behind your answers.
a. Patsy turned sixteen on April 4, 2016. She currently works at Metcalfe's Market 5 hours a week. She is not enrolled in school.
b. Pepper is twenty years old and works in his family's lawncare business for sixteen hours a week. Pepper does not get paid for this work. Pepper is not enrolled in school.
c. Susie volunteers ten hours a week with a local food pantry. Susie is also enrolled as a full-time college student. Susie celebrated her 21st birthday at the Nitty Gritty in February 2016.
d. Wilbur is out of work currently, but he is available to work and six weeks ago he submitted an application to a local cable company that was advertising a job that he thought he might be able to get. However, yesterday Wilbur agreed to go on a four week long vacation with his first cousin to see the western United States. They will leave next Tuesday for their trip.
e. Mariah is not currently working, but is available for work and is looking for work. Mariah is finding it tough to find positions that suit her skills and interests. The last time Mariah submitted a job application was June 15, 2016 and it is now July 5, 2016. Mariah turned 19 on January 1, 2014.
f. Josephine is sixty years old and she has worked throughout much of her adult life. In 2014 her work hours were cut to 20 hours a week at her job as a animal control officer for the local government. Josephine would like to work full-time and she is persistently looking for that kind of work and she is submitting job applications every week, but she has been unsuccessful in finding a full-time job.
g. Morris works at a local bakery forty hours a week. Morris is 38 years old. But, for the past two weeks Morris has not been at work and he has not been paid. Morris has been out sick with a bad flu bug.
Problem 6. For this problem you will find it helpful to use either a calculator or an Excel spreadsheet. For your answers, round to the nearest hundredth.
In the economy of Raleigh the market basket for purposes of calculating the consumer price index (CPI) consists of 10hamburgers, 1 computer and 20 oranges. You are given the following information about prices of these three goods for the years 2013, 2014, and 2015. Assume the price is the price per unit.
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Price in 2013
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Price in 2014
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Price in 2015
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Hamburger
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$4.00
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$5.00
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$6.00
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Computer
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$1,000.00
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$800.00
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$900.00
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Oranges
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$1.00
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$1.50
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$3.00
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a. Given the above information, calculate the cost of the market basket and put your answers in the following table. In your homework show how you got these costs.
Cost of Market Basket
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Year
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Cost of Market Basket
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2013
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2014
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2015
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b. Calculate the CPI for 2013, 2014, and 2015 in Raleigh using a one hundred point scale and with the base year equal to 2013. Put your answers in the following table. Round your answer to the nearest hundredth.
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Year
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CPI with Base Year 2013
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2013
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2014
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2015
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c. Calculate the CPI for 2013, 2014, and 2015 in Raleigh using a one hundred point scale and with the base year equal to 2015. Put your answers in the following table.Round your answer to the nearest hundredth.
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Year
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CPI with Base Year 2015
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2013
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2014
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2015
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d. Calculate the annual rate of inflation in Raleigh using 2013 as the base year. In your answer show how you found this annual rate of inflation. Then put your answers in the following table. Round your answer to the nearest tenth.
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Year
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Annual Rate of Inflation with Base Year 2013
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2013
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2014
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2015
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e. Calculate the annual rate of inflation in Raleigh using 2015 as the base year. In your answers show how you found this annual rate of inflation. Then put your answers in the following table. Round your answer to the nearest tenth.
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Year
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Annual Rate of Inflation with Base Year 2015
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2013
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2014
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2015
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f. Are your answers in (e) and (f) the same? If they are not, then you have made an error and you should go back and correct the error before submitting your homework.
Problem 7. LaShonda graduated from college in May and received four job offers for a position in economics in four different cities. The work at each of the jobs will be interesting and challenging to LaShonda and she does not have a strong personal preference as to where she would like to live. She does think it is important to compare the salaries for the four offers as well as the likely cost of living in each of the communities. The following table provides the information about the job offers that LaShonda has received.
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Location of Offer
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Salary (assume that all employee benefits are comparable and that all LaShonda needs to consider is the salary)
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Waukesha, WI
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$85,000
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Oakland, CA
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$130,000
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Des Moines, MN
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$90,000
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Savannah, GA
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$85,000
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LaShonda knows that the cost of living is different in these four cities and she would like to choose that job which offers her the best standard of living. Based upon information I got from a Cost-of-Living Calculator on a website entitled money.cnn.com/calculator/pf/cost-of-living
I have extrapolated an "inflation index" for each of these cities. Use this information to help guide LaShonda on her decision: remember she only wants to know where her nominal income will provide the best standard of living.
Here is some data that you will find helpful:
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Location
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Extrapolated Inflation Index
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Waukesha, WI
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0.693
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Oakland, CA
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1.000
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Des Moines, MN
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0.623
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Savannah, GA
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0.624
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a. Use the above information to fill in the following table:
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Location
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Nominal Salary
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Real Salary
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Extrapolated Inflation Index
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Waukesha, WI
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0.693
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Oakland, CA
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|
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1.000
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Des Moines, MN
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|
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0.623
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Savannah, GA
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0.624
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b. Given your results in (a), which offer should LaShonda accept?
c. Given your results in (a), which offer is the worst offer in terms of standard of living?
Problem 8. You are given the following information about an economy:
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Year
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Nominal GDP
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Real GDP
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GDP Deflator
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2010
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$200 Million
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60
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2011
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|
|
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2012
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|
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2013
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100
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2014
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You are also told that
- Nominal GDP increased by 20% between 2010 and 2011
- Real GDP stayed constant between 2010 and 2011
- Overall inflation, as measured by the GDP deflator, over the period 2010-2014 was 200%
- Real GDP increased 40% between 2011 and 2012
- Inflation increased by 20% between 2012 and 2013 as measured by the GDP deflator
- Nominal GDP between 2013 and 2014 stayed constant at $440 million
a. Given the above information fill in the missing cells in the table. Round your answers to the nearest whole number.
b. Given the above information calculate the annual percentage change in nominal GDP, real GDP, and the GDP deflator. Put your answers in the following table. Round your answers to the nearest tenth.
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Year
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Percentage Change in Nominal GDP
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Percentage Change in Real GDP
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Percentage Change in GDP Deflator
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2010
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----
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----
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----
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2011
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2012
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2013
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2014
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c. What does it mean if the percentage change in real GDP is a negative number?
d. According to your calculations is the percentage change in nominal GDP always equal to the percentage change in the GDP deflator?
e. According to your calculations is the percentage change in real GDP always equal to the percentage change in nominal GDP?