ECON 2003 Principles of Macroeconomics Assignment 1 Semester 2, 2021-22
Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit
ECON 2003 Principles ofMacroeconomics
Assignment 1
Semester 2, 2021-22
1. (20%) For each of the following scenarios determine the change in GDP and explain which component ofGDP is affected.
a. (5%) Johnson’s Bikes produces 2,000 bikes in 2020 and sells only half of these bikes to domestic consumers in 2020 at a price of $500 per bike. In 2021, this company produces another 1,500 bikes and sells 2,000 bikes to domestic consumers in 2021 at a price of $500 per bike. Find the impact on GDP in 2020 and 2021.
b. (5%) Susan raises chicken on a 100-acre plot outside of her city. In 2020, she decided to sell 50-acre of her chicken farm for a price of $20000 per acre to her friend.
c. (5%) Emily has a vintage car that has been in her family for 60 years already. An appraisal ofthe car noted that it was worth $50,000 due to its age and uniqueness. In 2021, she realized that the car needed some repair and refinishing after all these years ofuse. She took the car to “Mr. Johnnys”, a local vintage car restorer, who repaired and refinished the car. Mr. Johnnys charged Emily $5000 for his work.
d. (5%) At the beginning of year 2021, Miley runs a home-made bakery house and operates a cooking workshop professionally. She can bake 5 cakes a day for a price of $5 and it will be sold out before 5pm. In addition, Carrie and Samantha becomes her very first student in her workshop, the tuition fee is $600 per year for each student. The bakery opens 365 days a year.
2. (30%) In the economy of Happyvalley, the government has surveyed for the market basket of a typical consumer every year from 2019 to 2021 and found that the market basket has been very consistent over time with 100 hamburgers, 1 computer, and 200 oranges in the basket. You are given the following information about prices and productions of these three goods for the year 2019, 2020 and 2021. Suppose that 2019 is selected as the base year.
|
2019 prices |
2020 prices |
2021 prices |
Hamburger |
$4 |
$5 |
$6 |
Computer |
$1000 |
$800 |
$600 |
Orange |
$2 |
$3 |
$4 |
|
Output in 2019 |
Output in 2020 |
Output in 2021 |
Hamburger |
10,000 |
10,000 |
10,000 |
Computer |
100 |
200 |
400 |
Orange |
20,000 |
20,000 |
20,000 |
a. (6%) Calculate the CPI in 2019, 2020, and 2021.
b. (4%) Use CPI to calculate the inflation rates in 2020 and 2021.
c. (9%) Calculate the real GDP, nominal GDP, and GDP deflator in 2019,2020, and 2021.
d. (4%) Use GDP deflators to calculate the inflation rates in 2020 and 2021.
e. (7%) Compare your results from part b and part d, why are the inflation rates computed from CPI and the inflation rates computed from GDP deflator different? Explain. Which one of them better represent the cost of living in Happyvalley? Explain.
3. (20%) Suppose two countries, Freedomia and Happyland, have the same production function given by
= 0.40.6
Use the production function and the information shown in the table below to answer the following questions.
Country |
L = population (million) |
K = Physical Capital ($ trillion) |
Y = output ($ trillion) |
Freedomia |
105 |
0.18 |
1 |
Happyland |
15 |
0.74 |
0.6 |
a. (4%) Does the production function exhibit constant return to scale? Explain.
b. (6 %) Compute the total factor productivity (A), the income per person, and capital per person in each country.
c. (4%) Based on your answer in part b, which country may have a higher growth rate
of income per person next year? Explain.
d. (6%) Based on the information from this question, what are the different suggestions in sustaining economic growth you would give to the two countries? Explain.
4. (30%) The following table presents information about a closed economy. Use the information from this table to answer part a, b, and c.
GDP |
$13.9 trillion |
Consumption Spending |
$6.1 trillion |
Total tax revenue (before the deduction of transfer payment) |
$3.2 trillion |
Transfer payment |
$1.2 trillion |
Government Purchases |
$2.8 trillion |
a. (4%) Determine households’ disposable income.
b. (6%) Determine the private saving, investment, and national saving.
c. (4%) Determine the public saving. Is there a budget deficit or surplus? How much is the deficit or surplus?
Suppose the following table shows the economy’s demand and supply schedules in the loanable fund market when the government is running a budget deficit of $1 trillion. Use this information to answer part d and e.
Real interest rate |
LF demanded ($ trillion) |
LF supplied ($ trillion) |
New LF supplied ($ trillion) |
4% |
8.5 |
5.5 |
|
5% |
8 |
6 |
|
6% |
7.5 |
6.5 |
|
7% |
7 |
7 |
|
8% |
6.5 |
7.5 |
|
9% |
6 |
8 |
|
10% |
5.5 |
8.5 |
|
d. (6%) Determine the equilibrium interest rate, investment, and private saving.
e. (10%) If the government turn the budget deficit into a balanced budget by reducing government purchase, how does this change in government budget affect the loanable funds supplied? Find the new loanable fund supplied by filling the table above. Find the new equilibrium interest rate, investment, and private saving.
2022-03-20