Mankeiw Problem Set Answer

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  • Topic: Consumer price index, Inflation, GDP deflator
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  • Published : November 24, 2010
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Problem Set 1 Gmt 201 Autumn, 2010 1. Consider the markets for DVD movies, TV screens, and tickets at movie theaters. a. For each pair, identify whether they are complements or substitutes: • • • DVDs and TV screens DVDs and movie tickets TV screens and movie tickets

b. Suppose a technological advance reduces the cost of manufacturing TV screens. Draw a diagram to show what happens in the market for TV screens. c. Draw two more diagrams to show how the change in the market for TV screens affects the markets for DVDs and movie tickets.

2. What components of GDP (if any) would each of the following transactions affect? And as a result, what happens to this year’s GDP? Explain. a. A family buys a new refrigerator. b. Your aunt buys a new house. c. Hyundai sells a Sonata YF from its inventory. d. Ulsan Metropolitan City repaves North-river beltway. e. Your parents buy a bottle of French wine. f. Tata Motors, an Indian automaker, builds its factory in Songdo New Town near Incheon.

3. Karaokea is a small country in south east Asia. People there produce karaoke machines and CDs, and imports all foods from Appetitia, their neighboring country, in the following amounts: Year 2008 2009 2010 Pkaraoke $100 $100 $200 Qkaraoke 100 200 200 PCD $10 $10 $20 QCD 500 1000 1000 Pfood $1 $1.5 $2 Qfood 200 400 400

a. Compute NGDP, RGDP, and the GDP deflator for each year, using 2008 as the base year. b. Compute the NGDP and RGDP growth rates, and inflation rates in 2009 and 2010 from the preceding year.


c. Did economic well-being rise more in 2009 or 2010? Explain why you think so. d. Compute the CPI for each year, using 2008 as the base year. How do you compare this with the behavior of GDP deflator? Explain the cause of the differences.

4. Go to the website of Korea National Statistical Office, or Bank of Korea (Korea’s central bank, English version available) statistical database, and find monthly data on the consumer price index in the past ten years. If...
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