ECO121 – Basic Macroeconomics, Summer 2024

Individual Assignment 01
Due: 28-May in class (hard copy)
Instructions: 1. Make sure to write down your student detail and your hand writing clear and readable.
2. Show basic formula and calculations where applicable.
3. You may work with other students to discuss the questions; however, you MUST do the assignment
individually and ensure your true comprehension. Some students will be checked randomly some of
their correct answers in class. If anyone fails to show enough comprehension, there will have penalty
(from 10% to 40% of the final score).
Question 1 (3 marks). Suppose there is an economy that produces only two goods: tequila and peyote.
In 2022, the economy produced 100 litres of tequila and 200 peyote plants. The unit prices (per litre or
per plant) in 2022 were $100 and $500. 1000 people were employed in the tequila sector, and the peyote
sector employed 500.
In 2023, the weather was particular sunny and hot, which is good for tequila production but bad for the
cultivation of peyote. As a result, the economy produced 120 litres of tequila but only 191 peyote plants
in 2023.
The tequila and peyote sold for $90 per litre and $550 per plant that year. 1100 people were employed in
the tequila sector, while only 450 people worked in the peyote sector.
a. How much is Nominal GDP in 2022 and 2023? What is the percentage change?
b. How much is Real GDP in 2022 and 2023, by considering 2022 as the base year? What is the
percentage change?
c. How much is the GDP deflator in the two years? By what percentage does the price level change from
the base year to 2023?
d. What was the growth rate of average labor productivity for the whole economy between two years?
Question 2 (2 marks). Country A only produces and consumes oil and chicken as below:
Oil Chicken
Year Price ($) Quantity (litre) Price ($) Quantity (kg)
2021 (base year) 24 20 5 160
2022 30 24 6 H/1000
Note: H is your six-digit student code. Rounded your H/1000 to two decimal points.
a. Using a method similar to the CPI, compute the percentage change in the overall price level.
Use a fixed basket of 1 unit of oil and 3 units of chicken.
b. Using a method similar to the GDP deflator, compute the percentage change in the overall price level.

Question 3 (3.5 marks). Give True/False answers to the following statements, with short explanation
(0.2 mark for each correct answer and 0.3 mark for a convincing interpretation)
a. Population growth has negative effects on economic growth and living standards.
b. GDP records the market value of all final goods and services produced and demanded within a
country in a given period of time.
c. In a competitive labor market, both an increase in the minimum wage and a union formation could
result in an increase in the quantity of labor supplied.
d. Homeowners who purchase a home and have a 30-year fixed rate mortgage are hurt by inflation.
e. Free trade would lead to more rapid economic growth.
f. Higher saving leads to a higher economic growth indefinitely.
g. Job search would still cause unemployment if all workers and all employers were perfectly matched.
Question 4 (1.5 marks). International data show a positive relationship between income per capita and
the health of the population. Do you think higher income per capita would cause better health outcomes
and better health outcomes would also cause higher income? Briefly explain.
.