Order of Operations

McDonnell & Brue (Economics)

Question 12 (p 129) in Ch 7

The following table shows nominal GDP and an appropriate price index for a group of selected years. Compute real GDP for each decade jump. Indicate in each calculation whether you are inflating or deflating the nominal GDP data.

Year Nominal GDP, Billions Price Index

1996 = 100 Real GDP, Billions Inflating or

Deflating

GDP?

1960 $527.4 22.19 $2,376.75 Inflating

1968 911.5 26.29 $3467.10 Inflating

1978 2295.9 48.22 $4761.30 Inflating

1988 4742.5 80.22 $5911.87 Inflating

1998 8790.2 103.22 $8515.99 Deflating

Question 11 (p. 151) in Ch 8

a. If the CPI was 110 last year and is 121 this year, what is this year’s rate of inflation?

This year’s inflation rate is 10%. To calculate [(121-110) /110] x100 = 10%

b. What is the “Rule of 70”?

The “Rule of 70” is the time that it takes for money or investments to double. The process: divide 70 by the APR of any variable and get the approximate number of years for doubling that particular variable.

c. How long would it take for the price level to double if inflation persisted at 2, 5, and 10 percent?

2% 70/2 = 35 years 5% 70/5 = 14 years 10% 70/10 = 7 years

Question 2 (p. 370) in Ch 20

a. Graph the accompanying demand data listed below, and then use the midpoint formula for Ed to determine price elasticity of demand for each of the four possible $1 price changes. Attach graph to this sheet.

Product Quantity

Price Demanded

$5 1 4 2 3 3 2 4 1 5

Total revenue data, top to bottom: $5; $8; $9; $8; $5. When demand is elastic, price and total revenue move in the opposite direction. When demand is inelastic, price and total revenue move in the same direction

b. What can you conclude about the relationship between the slope of a curve and its elasticity?

Elasticity’s, top to bottom: 3; 1.4; .714; .333.