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Price and Quantity data for 2013, 2014 and 2015.

  1. Suppose you have the following Price and Quantity data for 2013, 2014 and 2015.

2013 Quantity Price ($) Expenditure
Cars 15 28000
Pizza Ovens 20 400
Tanks 5 300000
Nominal GDP

2014 Quantity Price Expenditure
Cars 12 25000
Pizza Ovens 30 500
Tanks 8 350000
Nominal GDP

2015 Quantity Price Expenditure
Cars 10 25000
Pizza Ovens 18 500
Tanks 3 320000
Nominal GDP

     Quantity(2014)      Price (2013)        Expenditure

Cars 12 28000
Pizza Ovens 30 400
Tanks 8 300000
Real GDP 2014

     Quantity(2015)      Price(2013)     Expenditure

Cars 10 28000
Pizza Ovens 18 400
Tanks 3 300000
Real GDP 2015

Compute Nominal (Money) GDP and Real GDP (using 2013 Prices) for each year. Compute the GDP growth rate for 2014 and 2015.Would the GDP Growth Rate for 2014 be different if 2014 prices were used as base year prices?
 

  1. The following data was recorded following a survey of the labor force at the end of 2015:
    Employed: 13,500; Unemployed: 1,500; Not in the labor force: 7500.
    The following changes in the labor market was observed for 2016: Job Losers: 750; Job Leavers 300; Hires and Recalls: 1000; New Entrants: 150; Reentrants: 450; Withdrawals: 500. All job losers, entrants and reentrants became unemployed. The working age population increased by 100 in 2016.

For 2016: Calculate the labor force participation rate and the unemployment rate

  1. Suppose a typical household bought the following in years 2017 and 2018:
    Q Quantity Purchased; P Price of Good. Suppose a typical family buys a market basket of 10 units of X, 14 units of Y, 25 units of Z

Good Q 2017 (units) P 2017 ($) Q 2018 (units) P 2018 ($)

X 10 15 10 14
Y 14 10 14 13
Z 25 11 25 13

a. Compute CPI 2017 and 2018 using 2017 as base year. Compute the rate of inflation in 2018.
b. If instead, you used 2018 as the base year, would the CPI number change? How about the rate of inflation for 2018.

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Sample Answer

 

 

 

 

Answers to Economic Problems:

1. Nominal GDP and Real GDP Calculations:

a) Nominal GDP:

Calculate the nominal GDP for each year by multiplying the quantity of each good by its price and summing those values.

Year Cars Pizza Ovens Tanks Nominal GDP
2013 (15 * $28,000) (20 * $400) (5 * $300,000) $1,820,000
2014 (12 * $25,000) (30 * $500) (8 * $350,000) $3,100,000
2015 (10 * $25,000) (18 * $500) (3 * $320,000) $1,030,000

b) Real GDP (using 2013 Prices):

Calculate the real GDP for 2014 and 2015 by multiplying the quantity of each good in those years by the price of that good in 2013 (the base year) and summing those values.

Full Answer Section

 

 

 

Year Cars Pizza Ovens Tanks Real GDP
2014 (12 * $28,000) (30 * $400) (8 * $300,000) $2,520,000
2015 (10 * $28,000) (18 * $400) (3 * $300,000) $1,800,000

c) GDP Growth Rate:

Calculate the GDP growth rate for 2014 and 2015 using the formula:

Growth Rate = ((New GDP – Old GDP) / Old GDP) * 100

  • 2014 Growth Rate: ((3,100,000 – 1,820,000) / 1,820,000) * 100 = 69.78%
  • 2015 Growth Rate: ((1,030,000 – 3,100,000) / 3,100,000) * 100 = -66.77% (Negative growth indicates a recession)

d) Impact of Different Base Year:

Yes, the GDP growth rate for 2014 would be different if 2014 prices were used as the base year. This is because using different base years accounts for inflation. Using 2014 prices would reflect the relative changes in production using 2014 as a benchmark, potentially resulting in a different growth rate compared to using 2013 prices.

2. Labor Force Participation Rate and Unemployment Rate (2016):

a) Labor Force Participation Rate:

  • Labor Force = Employed + Unemployed = 13,500 + 1,500 = 15,000
  • Working Age Population (including 2016 increase) = 15,000 + 100 = 15,100
  • Labor Force Participation Rate = (Labor Force / Working Age Population) * 100 = (15,000 / 15,100) * 100 = 99.34%

b) Unemployment Rate:

  • Unemployment Rate = (Unemployed / Labor Force) * 100 = (1,500 / 15,000) * 100 = 10%

3. Consumer Price Index (CPI) and Inflation Rate:

a) CPI with 2017 as Base Year:

Year X (10 units) Y (14 units) Z (25 units) Total Expenditure CPI
2017 $150 $140 $275 $565 100 (Base Year)
2018 $140 $182 $325 $647

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