04 Jun Question YOU MUST USE THIS AS A TEMPLATE THAT IS MAKE SPACE
Question
YOU MUST USE THIS AS A TEMPLATE THAT IS MAKE SPACE FOR YOUR ANSWERS BY HITTING ENTER
Economics 104
Instructions: Please show all work or points will be taken off. Good luck!
1. (20 points) Consider an economy that produces only two goods: fresh apricots and dried
apricots. In this economy, the technology of producing dried apricots is to place fresh apricots on
special racks and allow them to dry in the sun. Fannies Farms is the only company that grows
fresh apricots, while Darryls Dried Victuals is the only producer of dried apricots. Fannies sells
some of its apricots directly to consumers for consumption. The relevant revenue and cost
information for each of the two firms in the economy is given below:
Darryls
Revenue from selling dried apricots:
Cost of buying fresh apricots from Fannies:
Interest on funds borrowed to buy drying racks:
Wages paid to employees
Taxes
$2,300,000
1,200,000
250,000
600,000
100,000
Fannies
Revenue from selling fresh apricots:
Rent on land (including apricot trees)
Wages to employees
Taxes
$2,000,000
300,000
1,200,000
200,000
Calculate nominal GDP using the expenditure approach and the income approach and show that
they give the same answer.
2. (15 points) According to the cruise ship example:
a) what are the real and what are the nominal objectives (goals) of macroeconomic policymakers?
b) what are the three policy lags and how do they differ with regard to fiscal vs. monetary policy?
c) go to FRED and search for UNRATE and compare the most recent unemployment rate to the
rate associated with full employment as defined by the series NROU on FRED. Note that NROU
is quarterly data so match the quarter with the most recent unemployment statistic. Which is
higher and in terms of policy, should policymakers try to stimulate the economy or should they
try to slow it down?
3. (20 points)Use the table below to answer the following questions (please show all work).
Good
Tomatoes
Tofu
Tacos
2011
Quantity
500
800
900
Price
$2.00
$4.00
$3.00
2012
Quantity
600
1000
900
Price
$2.20
$4.25
$4.00
a) What is nominal GDP for 2011? For 2012?
b) Assuming that 2011 is the base year, calculate real GDP in 2011 and 2012.
c) Now calculate the GDP deflator for 2011 and 2012 (assuming that 2011 is the base year).
d) What is the rate of economic growth between the two years as defined byt he percent change
real GDP.
e) What is the rate of inflation between the two years?
4. (10 points) Go to FRED and search for GDP (nominal GDP) and GDPDEF (the GDP price deflator) and using the most recent data, use these two series to calculate real GDP. Now search for
GDPC1 (real GDP) and verify that your answer is correct.
5. (10 points) Go to the NBER website and using the official dates of the 1973 – 1975 recession
(from peak to trough) calculate the percent change in real GDP (GDPCI from above) and the percent change in the GDP price deflator (GDPDEF from above) during the recession. What is this
combination of GDP growth and percent change in prices referred to and why?
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