Principles of Macroeconomics. Problem Set 1

Transcription

1 Principles of Macroeconomics Problem Set 1 Sherif Khalifa 1. Consider the market for CD players: Price Supply Demand Quantity The equilibrium price= The equilibrium quantity= If the price per CD player= $10, is there a surplus or a shortage of CD players and by how much? 1

2 If the price per CD player= $20, is there a surplus or a shortage of CD players and by how much? 2

3 2. Consider the market for CD players. Start from the initial equilibrium. If a new technology for producing CD players is invented, and at the same time more people prefer ipads to CD players. Draw the graphs, show the shifts of the curves, and explain what happens to the equilibrium price and quantity for CD players? 3

4 3. Consider the market for CD players. The demand curve is given by the following equation Q D = P The supply curve is given by the following equation Q S = P where Q D is the quantity demanded, Q S is the quantity supplied, and P is the price. The equilibrium price= The equilibrium quantity= 4

5 4. Consider the following table of prices and quantities of items produced in the following years: Year Price Quantity Price Quantity of Fish of Fish of Chicken of Chicken Nominal GDP in 2014= Nominal GDP in 2015= Growth rate of Nominal GDP= Real GDP in 2014= Real GDP in 2015= Growth rate of Real GDP= GDP Deflator in 2014= GDP Deflator in 2015= 5. Consider the following table: Year Nominal GDP GDP Deflator Real GDP in 2014= Real GDP in 2015= Growth rate of Real GDP= 5

6 6. Assume in 2015, Dell sells computers from its inventory worth $1 million, and American consumers increased their purchases of Swedish Volvos by $2 million. How do these events affect the United States GDP in 2015? 7. If the nation s income=$8 trillion, taxes=$1.5 trillion, private saving=$0.5 trillion, and public saving=$0.2 trillion: Consumption Spending= Government Spending= National saving= National investment= 6

7 8. Assume that typical consumers consume 150 fish and 200 chicken. The prices of these goods are: Year Price Price of Fish of Chicken The Consumer Price Index in 2014= The Consumer Price Index in 2015= The inflation rate= Who is better off: fish producers or chicken producers? Who is worse off: fish producers or chicken producers? 9. Consider the following information about the salary of an Economics graduate: Year Salary CPI 1950 $35, Today $55, The salary of the 1950 Economics graduate in today s dollars= Who has a higher purchasing power? 10. Consider the price of the New York Times and the average wage in manufacturing in the following years: Year NYT Price Wage 1950 $0.15 $3.23/hour Today $0.75 $14.32/hour Did the manufacturing worker s purchasing power in terms of the New York Times increase or decrease? 7

8 11. Consider a country with a population of 2,450,375. In this country, 565,870 are in the military, in prisons, and institutionalized. The remainder are civilians. Out of the civilian population, 375,450 are not applying for jobs, and the remainder are in the labor force. Out of those in the labor force, 485,900 are unemployed: The non civilian population= The civilian population= The labor force= The employed= The unemployed= The labor force participation rate= The unemployment rate= 12. If a country has 100 workers with a total of 1500 years of education. The current human capital per worker= If this country receives another 100 workers with 1495 years of education, productivity increases or decreases? If a country has 100 workers with a total of 1500 years of education. The current human capital per worker= If this country receives another 100 workers with 1545 years of education, productivity increases or decreases? 8

9 13. Suppose a borrower and a lender agree on a nominal interest rate=15% to be paid on a loan. Assume that expected inflation=4%. The expected real interest rate= Suppose actual inflation turned out to be 4.5%, the actual real interest rate= who is worse off? who is better off? Suppose actual inflation turned out to be 3.75%, the actual real interest rate= who is worse off? who is better off? 14. If you deposit $2000 in a bank for 6 years, where the interest rate is 3%, the future value= 15. If you need to have $3500 after 8 years, how much should you deposit in a bank today if the interest rate is 4%? 16. If someone proposes that you invest your saving of $500,000 in a project that will generate $550,000 after 2 years. Do you accept or reject the project proposal if the interest rate in the bank is 5%? 9

10 17. A company has an investment project that would cost $10 million today and yield a payoff of $15 million in 4 years. Should the firm undertake the project if the interest rate is 11%? 10%? 9%? 8%? What is the exact interest rate that would make you indifferent? 10

11 18. Consider the market for loanable funds. Start from the initial equilibrium. What happens to the equilibrium quantity and interest rate if there is a decline in the government budget deficit, and at the same time there is an increase in investment taxes? Draw the graphs and show the shifts of the curves. 11