# Macroeconomics Part 1

Topics: Inflation, Economics, Consumer price index Pages: 2 (532 words) Published: November 22, 2011
Macroeconomics Problem Set 1

1. Explain why an economy´s income must equal its expenditure 2. List the four components of GDP. Give an example of each 3. Why do Economists use real GDP rather than nominal GDP to gauge economic well-being

4. What component of GDP (if any) would each of the following transactions affect? Explain

a. A family bus a new refrigerator
b. Jane buys a new house
c. For sells a Thunderbird from its inventory
e. The Government builds a new bridge in Manta
g. Chevrolet expands its factory in Ecuador
5. Below are some data from the land of milk and honey
year| Price Milk| Q milk| Price Honey| Q Honey|
2011| 1| 100| 2| 50|
2002| 1| 200| 2| 100|
2003| 2| 200| 4| 100|

a. Compute nominal GDP, real GDP and de GDP Deflator for each year, using 2001 as the base year b. Compute the percentage chance in nominal GDP, real GDP, and the GDP deflator in 2002 and 2003 c. In your opinion, did economic well-being rise more in 2002 or 2003. Explain

6. Which do you think has a greater effect on consumer price index a 10% increase in the price of chicken or a 10% increase in the price of caviar. Why 7. If the price of a navy submarine rises, is the consumer price index or the GDP deflator affect or more? Why? 8. Explain the meaning of nominal interest rate and real interest rate 9. Suppose that people consume only three goods as shown below: | Tennis balls| Tennis racquets| Gatorade|

2001 price| 2| 40| 1|
2001 Q| 100| 10| 200|
2002 Price| 2| 60| 2|
2002 Q| 100| 10| 200|

a. What is the percentage change in the price of each good? What is the percentage change in the overall price level b. Do tennis racquets become more or less expensive relative to Gatorade? 10. Suppose that the residents of Vegopia spend all of their income on...