Real vs. Nominal GDP: Nominal GDP is calculated using current year prices, while real GDP is calculated using base year prices.

Transcription

1 Ecoomics 102 Discussio Hadout Week 6 Sprig 2018 Comparig GDP across coutries: Purchasig Power Parity (PPP) U.S. ad Chia: which coutry has higher GDP i 2017? Comparig GDP across time: Iflatio Adjusted (Real) GDP Real vs. Nomial GDP: Nomial GDP is calculated usig curret year prices, while real GDP is calculated usig base year prices. GDP omial = P i curret year Q i GDP real = P i base year Q i where i s are all categories of goods ad services produced i the ecoomy. Price idex: measures the geeral price level or cost of livig i a ecoomy i a give year t. Commoly used price idices iclude GDP deflator ad Cosumer Price Idex (CPI) GDP deflator = GDP omial GDP real 100 CPI = P curret year i Q i P i base year Q i 100 where i s are from a market basket of cosumer goods ad services purchased by typical households. Uemploymet: the state of actively lookig for employmet but ot beig curretly employed. Uemploymet rate = # uemployed workers # employed workers + # uemployed workers

2 Questio 1 Use the followig iformatio about productio i a small ecoomy to aswer this set of questios. Assume that this ecoomy oly produces Computers, Chips, ad Moitors from its available resources Price of a Computer $500 $500 $600 Quatity of Computers Produced Price of a Chip $10 $15 $10 Quatity of Chips Produced Price of a Moitor $100 $80 $100 Quatity of Moitors Produced a) Calculate the value of omial GDP for 2010, 2011, ad 2012 for the small ecoomy described i the above ad usig 2010 as your base year, calculate the value of real GDP for 2010, 2011, ad 2012 for the small ecoomy described i the above. I ll deote omial GDP ad real GDP as NGDP ad RGDP, respectively. Nomial GDP is the summatio of values of every good. NGDP(2010)=500(Price of a Computer)*20(quatity of Computers)+10(Price of a Chip)*10(Quatity of Chips)+100(Price of a Moitor)*5(Quatity of Moitors)= $10600 NGDP(2011)=500*25+15*20+80*8= $13440 NGDP(2012)=600*30+10*20+100*8= $19000 Real GDP is the summatio of values of every good, usig the prices of base year. RGDP(2010)=500(Price of a Computer i 2010)*20+10(Price of a Chip i 2010)*10+100(Price of a Moitor i 2010)*5= $10600 RGDP(2011)=500(Price of a Computer i 2010)*25+10(Price of a Chip i 2010)*20+100(Price of a Moitor i 2010)*8= $13500 RGDP(2012)=500(Price of a Computer i 2010)*30+10(Price of a Chip i 2010)*20+100(Price of a Moitor i 2010)*8= $16000 b) Calculate the GDP deflator for 2010, 2011, ad 2012 usig the real GDPs calculated i part a). What is the iflatio rate betwee year 2010 ad 2011? (i.e. what is the percetage chage i the GDP deflator?) Betwee 2010 ad 2012? GDP deflator(2010)= {NGDP(2010)/RGDP(2010)}*100=100 GDP deflator(2011)= {NGDP(2011)/RGDP(2011)}*100=99.56 GDP deflator(2012)= {NGDP(2012)/RGDP(2012)}*100= Iflatio rate betwee 2010 ad 2011: {GDP deflator(2011) - GDP deflator(2010)}/ GDP deflator(2010) = 0.44% Iflatio rate betwee 2010 ad 2012:

3 {GDP deflator(2012) - GDP deflator(2010)}/ GDP deflator(2010) = 18.75% c) Calculate the percetage chage i real GDP (we ofte use the term GDP growth rate to deote this) usig 2010 as your base year. percetage chage = 100*(value after the chage value before the chage)/value before the chage percetage chage betwee 2010 ad 2011 =100*(RGDP(2011)-RGDP(2010))/RGDP(2010)=100*( )/10,600=27.36% percetage chage betwee 2011 ad 2012 =100*(RGDP(2012)-RGDP(2011))/RGDP(2011)=100*( )/13500=18.52% d) Solve part c) agai by usig real GDP usig 2012 as your base year. Is there ay differece? RGDP(2010)=600(Price of a Computer i 2012)*20+10(Price of a Chip i 2012)*10+100(Price of a Moitor i 2012)*5= $12600 RGDP(2011)=600(Price of a Computer i 2012)*25+10(Price of a Chip i 2012)*20+100(Price of a Moitor i 2012)*8= $16000 RGDP(2012)=600(Price of a Computer i 2012)*30+10(Price of a Chip i 2012)*20+100(Price of a Moitor i 2012)*8= $19000 percetage chage betwee 2010 ad 2011 =100*(RGDP(2011)-RGDP(2010))/RGDP(2010)=100*( )/12600=26.98% percetage chage betwee 2011 ad 2012 =100*(RGDP(2012)-RGDP(2011))/RGDP(2011)=100*( )/16000=18.75% The percetage chages have chaged. e) Now, assume that Moitors are oly used as itermediate goods for makig Computers. Also, Chips are presumed to be oly used as itermediate goods for makig Moitors. Calculate the omial GDP i this case. The oly fial good i this ecoomy is a Computer. So we should cosider the values of Computers oly for calculatig GDP. NGDP(2010)=500(Price of a Computer)*20(quatity of Computers)= $10000 NGDP(2011)=500*25+15*20+80*8= $12500 NGDP(2012)=600*30+10*20+100*8= $18000 We ca also get the same value by addig value added method. For illustratio, let s calculate omial GDP i Value added of makig Chips = $100 Value added of makig Moitors = value of Moitors value of Chips = = $400

4 Value added of makig Computers = value of Computers value of Moitors = 10, = $9500 NGDP(2010)= = $10000 f) Suppose that the typical household i this ecoomy cosumes a basket of oe computer ad three moitors. Calculate the Cosumer Price Idex (CPI) for each year usig year 2010 as the base year. What is the iflatio rate betwee year 2010 ad 2011? Betwee 2010 ad 2012? Value of basket (2010) = 500(Price of a Computer i 2010)*1+100(Price of a Moitor i 2010)*3 = 800 CPI (2010) = 100, sice 2010 is the base year. Value of basket (2011) = 500(Price of a Computer i 2011)*1+80(Price of a Moitor i 2011)*3 = 740 CPI (2011) = (740/800) *100 = 92.5 Value of basket (2012) = 600(Price of a Computer i 2012)*1+100(Price of a Moitor i 2012)*3 = 900 CPI (2011) = (900/800) *100 = Iflatio rate betwee 2010 ad 2011: {CPI(2011) - CPI(2010)}/ CPI(2010) = 7.5% Iflatio rate betwee 2010 ad 2012: {CPI(2012) - CPI(2010)}/ CPI(2010) = 12.5% g) Suppose that a statisticia uses the CPI calculated i part f) ad the omial GDP data to calculate the real GDP of year What umber will he get? RGDP(2012) = NGDP(2012) CPI(2012) 100 = = 19000*(8/9) = Questio 2 The followig table provides the populatio cesus data for the small pricipality of Sealad populatio 2011 populatio Professioal fortue tellers 4 6 (o average earig $10 per day) Bitcoi traders workig for Sealad Commodity 2 0 Exchage (has bee losig moey for six moths) (seekig job as fortue tellers) Sealad Armed Force members 2 3 (armed with 2 sligshots ad 1 water gu) Wealthy retirees from Lodo 6 5

5 (earig $1000 per day from stock divideds ) Recet graduates from Sealad Uiversity 3 2 (with degrees i surfig) (seekig job as professioal shark huters) Disillusioed uiversity graduates 0 1 (givig up o fidig jobs ad playig video games all day) Priso imates 1 (dead) (held i custody for isultig the price) The Price of Sealad 1 1 (paid $100 per day by the state treasury) Total Populatio What is the uemploymet rate i Sealad i 2010? I 2011? The uemploymet rate is equal to the umber of uemployed people (people who are ot employed but actively seekig jobs) divided by the size of the labor force (employed ad uemployed people). Professioal fortue tellers are employed, earig a wage of $10 per day. Bitcoi traders are employed by Sealad Commodity Exchage, eve though they do t make moey ad are seekig other jobs. Armed force members are either employed or uemployed. They are ot part of the lab or force, as labor force usually oly couts civilias. Retirees are ot part of the labor force. Recet graduates seekig jobs are uemployed. Disillusioed graduates who stop lookig for work are ot part of the labor force. This type of demographic is usually termed discouraged workers, people who drop out of the labor force due to persistet uemploymet. Priso imates are ot part of the labor force. I will argue that the Price of Sealad is employed by the govermet of Sealad, just as the presidet of the Uited States is a employee of the federal govermet. The uemploymet rate i 2010 is thus: The uemploymet rate i 2011 is: 100% = 30% 2 100% = 22.2%

6 Eve though the umber of employed people stay costat at seve, the uemploymet rate has decreased. Questios from Midterm I (#8 o Versio 1,2,3,4,5,6). True or False: Your opportuity cost of takig this course is the cost of the activity you would have chose if you had ot take the course. a. True b. False Use the followig iformatio to aswer the ext FOUR (4) questios. The market for Tesla Roadster is iitially characterized by the followig demad ad supply fuctios, where Q is the quatity of Tesla Roadsters ad P is the price per Tesla Roadster i tes of thousads of U.S. Dollars (P = 1 deotes the price of $10,000): Demad Fuctio for Tesla Roadster: Q D = 300P + 8,900 Supply Fuctio for Tesla Roadster: Q S = 500P 9500 (#19 o Versio 1,3,5 or #28 o Versio 2,4,6). After Space X s Falco Heavy Rocket successfully lauched Elo Musk s ow Tesla Roadster to the Asteroid Belt o Feb. 6, 2018, the demad for Tesla Roadsters skyrocketed ad pushed the equilibrium price to $420,000. How may Tesla Roadsters are sold i the ew equilibrium? a. 2,000 Tesla Roadsters b. 7,500 Tesla Roadsters c. 10,000 Tesla Roadsters d. 11,500 Tesla Roadsters (#20 o Versio 1,3,5 or #29 o Versio 2,4,6). Compared to the origial equilibrium, how may more Tesla Roadsters do cosumers demad if the price stayed at the origial equilibrium level? a. 9,500 more Tesla Roadsters b. 15,200 more Tesla Roadsters c. 17,200 more Tesla Roadsters d. 19,200 more Tesla Roadsters (#21 o Versio 1,3,5 or #30 o Versio 2,4,6). Suppose that after the boost i demad, the prices for Tesla Roadster s major iput compoets hiked sigificatly due to shortage, thus raisig the productio cost of Tesla Roadsters sigificatly. Tesla respoded by cuttig back Roadster productio. If 10,000 Roadsters are sold i the ew equilibrium, what is the equilibrium price?

7 a. $430,000 b. $450,000 c. $470,000 d. $490,000 (#22 o Versio 1,3,5 or #31 o Versio 2,4,6). Compared to the level before the productio cut, the price level above which Tesla will supply positive umber of Roadsters has by. a. Decreased; $60,000 b. Decreased; $80,000 c. Icreased; $60,000 d. Icreased; $80,000