ASSIGNMENT MACRO ECONOMICS

1. Chapter 23, problems 4, 5

Problem 4:

a. Norminal GDP: using 2013 as the base year

2013 (100*1)+(50*2)=200
2014 (200*1)+(100*2)=400
2015 (200*2)+(100*4)=800

Real GDP
2013 (100*1)+(50*2)=200
2014 (200*1)+(100*2)=400
2015 (200*1)+(100*2)=400

GDP Deflation

200
2013 200
*100= 100

400
2014 400
*100=100

8 00
2015 4 00
*100=200
b.
Percentage change in norminal GDP

( 4 00−200)
2014 *100=100%
200

(8 00−400)
2015 *100=100%
4 00
Percentage change in real GDP
( 400−200)
2014 *100=100%
200
( 4 00−4 00)
2015 *100=0%
4 00
Percentage change in GDP Deflator
 (1 00−1 00)
2014 *100=0%
1 00
(2 00−1 00)
2015 *100=100%
1 00

- Prices in 2013 and 2014 did not change so the percentage change in GDP Deflator
is 0%
- Output levels didn’t change from 2014 to 2015 so the percentage change in real
GDP is 0%
c.
Economic well being rose more 2013 than 2014 because:
+ Real GDP rose in 2014 but did not rise in 2015
+ In 2014, Real GDP went up but prices did not
+ In 2015, Real GDP did not increase but prices increased.
Problem 5:
Year 1: 3 bars: $4
Year 2: 4 bars: $5
Year 3: 5 bars: $6
We have the base year is year 1
a. Norminal GDP
Y1: 4*3=12
Y2: 5*4=20
Y3: 6*5=30
b. Real GDP
Y1: 3*4=12
Y2: 4*4=16
Y3: 5*4=20
c. GDP Deflation
Y1: (12/12)*100= 100
Y2: (20/16)*100= 125
Y3: (30/20)*100= 150
d. Percentage growth rate of Real GDP from Y2 to Y3:
20−16
16
*100% = 25%

e. Inflation rate by the GDP Deflation from Y2 to Y3:

150−1 25
1 25
*100%= 20%

f.
+ For one-good economy, percentage growth rate of real GDP = rate of
growth in production.
+ It is the same with inflation rate measured by GDP Deflation= the usual
inflation rate in the period.
+ So, we could have answered (d) & (e) without answering (b) & (c)

2. Chapter 24, problems 3, 7

Problem 3:
a. Percentage change in price:
2−2
Tennis Balls: 2
*100= 0%
6−4
Golf Balls: 4
*100= 50%
2−1
Bottles of Gat..: 1
*100= 100%

b. In 2014: (100*2)+(100*4)+(200*1)= $800

In 2015: (100*2)+(100*6)+(200*2)=$1200
 Using 2014 as the base year
CPI 2014 (800/800)*100=100
CPI 2015 (1200/800)*100= 150

c. The size of a bottle of Gatorade went up from 2014 to 2015 would cause
lower the inflation rate estimate because a bottle of Gatorade is suddenly
worth more than it was previously. The comparision should be made on a
per-ounce basis rather than with bottles as a unit.

d. Because it improves well-being, an increase in the quality of Gatorade lowers

the inflation rate. And new flavors improve one’s well-being, this shift in
quality lowers rate of inflation in 2015

Problem 7:
(2 , 00−0,15)
a. *100= 1233,3 %
0,15
(23,09−3,36)
b. *100= 578,2%
3,36
0,15
c. In 1970, a worker took (3 , 36/60) = 2,68 minutes to buy

2,00
In 2011, a worker took (23,09/60) = 5,2 minutes to buy

d. Worker’s purchasing power in terms of newspaper fell between 1970 & 2011

3. Chapter 25, problem 1, 4.

4. Chapter 26, problems 5, 7
5. Chapter 28, problems 4, 7

Problem 4:

a. As the auto-plant lays people off, we know that these people are
immediately going to start looking for new jobs. Based on this information,
we can infer that the unemployment rate is going to increase and the
employment-population rate is going to decrease.

b. These people who quit looking for new jobs are no longer counted in the
unemployment rate statistic, so the unemployment rate will decrease as these
people are no longer accounted for. The employment to population ratio will
stay the same because these people were not employed before they stopped
looking for work and they will still count as part of the population.

c. These graduates are actively looking for work but cannot find any, so the
unemployment rate will increase while the employment to population ratio
stays the same because these people didn't have jobs before this.

d. These graduates find work immediately after graduating which increases the
labor force and the number of people employed. With this in mind, we can
say that the unemployment rate will decrease and the employment-
population ratio will increase

e. We can infer from the given information that the total number of people
employed will fall. With this in mind, we know that the unemployment rate
will increase and the employment to population ratio will decrease.

f. These retirees will be living longer but there is no affect of the labor force
because these people are done working. So the unemployment rate will stay
the same, while the employment to population ratio will decrease.
 Problem 7:
a. If a union was formed by the manufacturing workers, we can expect their
wages to go up and their employment to go down. Wages in unionized
sectors are typically 10-20% higher than non-unionized comparable sectors.
The higher wages mean that employers are going to demand less labor so the
employment will likely decrease in the manufacturing labor market.

b. This decrease in demand for labor within the manufacturing market will
increase the supply of labor in the other market(service). A rightward shift in
the supply of labor within this market will cause wages to decrease. The
diagram posted below shows the impact of this new supply of labor within
the service market:

Wage S

S1

W1

Q Q1
Quantity of Labors
6. Chapter 29, problems 3, 11.

Problem 11
a. If people hold all money as currency, then the quantity of money is
determined as follows:
= Number of bills × Worth of each bill
= 2,000 × $1
= $2,000

b. If people hold all money as demand deposits and banks maintain 100 percent
reserves,
Money multiplier
= 1/ Reserve requirement ratio
= 1/1
=1
Quantity of money:
= Money multiplier × Demand deposits
= 1 × $2,000 = $2,000

c. If people hold equal amounts of currency and demand deposits and banks
maintain 100 percent reserves, Therefore: Currency = $1,000, Demand
deposits = $1,000
Quantity of Money:
= Currency with public + Demand deposits
= $1,000 + $1,00
= $2,000

d. If people hold all money as demand deposits and banks maintain 10 percent
reserves
Money multiplier
= 1/ Reserve requirement ratio
= 1/0.1
=10
Quantity of money:
= Money multiplier × Demand deposits
= 2000*10
 = $20,000.

e. If people hold equal amounts of currency and demand deposits and banks
maintain 25 percent reserves,
Now, we know that
Currency = Demand deposits (1)
Banks maintain 10 percent reserves,
10 × ($2,000 - Currency) = Demand deposits
10 × ($2,000 - Demand deposits) = Demand deposits
$20,000 = 11 Demand deposits
$1,818 = Demand deposits
Therefore, the currency = $4,000
Quantity of money:
= Currency + Demand deposits
= $1,818 + $1,818
= $3,636

Problem 3:

a. Assets Liabilities

Required reserves: $25 Million (10%) Deposits: $250 Million

Loans: $225 Million
Total Assets: $250 Million Total Liabilities: $250 Million

b.
Assets Liabilities
Requires reserves: $24 Million (10%) Revised deposits: $240 Million
Loans: $216 Million
 Total assets: $240 milllion Total liabilities: $240 million

c. Other Banks will have to pay $9 million to BSB

d. If the bank already has loan agreements with other people, it may be difficult
to get them to pay off their debts quickly, especially if the rates are fixed. It
should restrict the number of loans it makes, sell other assets to make
money, and borrow from the FED as a last option.