Eco exam

Problem Set 1

ECON 3 − Principles of Macroeconomics

University of California San Diego

Christopher Gibson

April 4, 2020

1. For each of the following transactions, state the effect both on U.S. GDP and on the four

components of aggregate expenditure.

(a) Your mother buys a BMW made in North Carolina.

(b) Your friend buys a SAAB imported from Sweden.

(c) You buy 10 shares of stock in Amazon.

(d) You buy 20 shares of stock in MercadoLibre, an Argentine-owned competitor of

Amazon.

(e) You buy a used car from across the country and pay $1,000 to have it shipped to

you.

(f) Nike produces 100,000 Air Jordan shoes and sells half to consumers for $90 each.

(g) Napa valley vineyards produces 40,000 bottles of wine priced at $10 each, exports

10,000 to New York, 10,000 to Canada, sells 10,000 to the U.S. government for its

upcoming holiday party, and stores the remainder.

2. Consider a small economy in which people eat carrots, draw exclusively economics graphs

with markers, and use tractors for the production of carrots.

Carrots Markers Tractors

Quantity Price Quantity Price Quantity Price

2010 1,200 $1.50 120 $2.50 5 $10,000

2011 1,300 $1.15 150 $2.45 7 $11,000

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(a) Calculate nominal and real GDP for 2010 and 2011 using 2010 as the base year.

(b) Calculate the GDP deflator for each year. What is the inflation rate according to

GDP deflator?

(c) Calculate the CPI for each year using 2010 as the base year with all goods included

in the representative basket. What is the inflation rate according the the CPI?

(d) What is the relationship between CPI and GDP deflator?

(e) Is the basket you used in (c), a “representative” basket for consumers? What would

be a better representative basket? What goods should be left out?

(f) Calculate CPI using the representative basket in (e). How does this change your

answer? If your answer has changed dramatically, why is this so?

3. Suppose you receive the following limited information about the labor market:

Working-age Employment Unemployment Participation

Not in

population labor force

Rate 100% 4% 65%

Total 50m

Using what you know about employment statistics, fill in the blank entries.

4. The following is a report from a BLS survey taker:

There were 65 people in the houses I visited, 10 of them children under 16;

25 people had full-time jobs, and 5 of them had part-time jobs. There were 10

retirees, 5 full-time homemakers, 5 full-time students over age 16, and 2 people

who were disabled and cannot work. The remaining people did not have jobs

but all said they would like one. One of these people had not looked actively for

work for 3 months, however.

Assuming this is a representative sample, find the labor force, the unemployment rate,

and the participation rate implied by the survey taker’s report

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