Macroeconomics Test Questions

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Take-Home Test 1
Due: Thursday, October 6, in class

1. Find quarterly data on GDP and its components and for the following components compute and draw graphs for the percentage of GDP between 1960 to 2011: a. Personal consumption expenditures

b. Gross private domestic investment
c. Government purchases
d. Net exports
e. National defense purchases
f. State and local purchases
g. Imports

Do you see any stable relationship in the data? Do you see any long-term trends?

2. Consider an economy that produces and consumes bread and automobiles. In the following table are data for two different years:

| |Year 2000 |Year 2010 | |Good |Quantity |Price |Quantity |Price | |Automobiles |100 |$50,000 |120 |$60,000 | |Bread |500,000 |$10 |400,000 |$20 |

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 (the GDP deflator) - a fixed-weight price index such as the CPI
b. What was the inflation rate between 2000 and 2010? Compare the results obtained using the GDP deflator and the CPI.

3. Suppose that an economy’s production function is Cobb-Douglas with parameter α=0.3. a. Calculate the fractions of income that capital and labor receive. b. Suppose that immigration increases the labor force by 10 percent. What happens to total output (in percentage)? What happens to the real wage (in percentage)? Explain the results you obtain intuitively. c. Suppose the capital stock increases by 10%. Explain (you don’t have to...
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