7. . Consider an economy that produces and consumes hot dogs and hamburgers. In
ID: 1145567 • Letter: 7
Question
7. . Consider an economy that produces and consumes hot dogs and hamburgers. In the following table are data for two different years 2010 2015 Good Hot dogs Hamburgers Quantity 200 200 Price $2 $3 Quantity 250 500 Price $4 $4 a. Using 2010 as the base year, compute the following statistics for each year: nominal GDP, real GDP, the implicit price deflator for GDP, and a fixed-weight price index such as the CPI. b. By what percentage did prices rise between 2010 and 2015? Give the answer for each good and also for the two measures of the overall price level. Compare the answers given by the Laspeyres and Paasche price indexes Explain the differencExplanation / Answer
Question 10
(a)
Y = 8,000
G = 2,500
T = 2,000
C = 1,000 + 2/3(Y - T) = 1,000 + 2/3(8,000 - 2,000) = 5,000
Compute Private Saving -
Private saving = Y - T - C = 8,000 - 2,000 - 5,000 = 1,000
The private saving is 1,000.
Compute Public Saving -
Public saving = T - G = 2,000 - 2,500 = -500
The public saving is -500.
Compute National Saving -
National Saving = Private saving + Public saving = 1,000 + (-500) = 500
The National saving is 500.
(b)
Y = 8,000
G = 2,500
T = 2,000
C = 1,000 + 2/3(Y - T) = 1,000 + 2/3(8,000 - 2,000) = 5,000
In equilibrium,
Y = C + I + G
8,000 = 5,000 + 1,200 -100r + 2,500
100r = 700
r = 7
The equilibrium interest rate is 7 percent.
(c)
Y = 8,000
G = 2,000
T = 2,000
C = 1,000 + 2/3(Y - T) = 1,000 + 2/3(8,000 - 2,000) = 5,000
Compute Private Saving -
Private saving = Y - T - C = 8,000 - 2,000 - 5,000 = 1,000
The private saving is 1,000.
Compute Public Saving -
Public saving = T - G = 2,000 - 2,000 = 0
The public saving is 0.
Compute National Saving -
National Saving = Private saving + Public saving = 1,000 + 0 = 1,000
The National saving is 1,000.
(d)
Y = 8,000
G = 2,000
T = 2,000
C = 1,000 + 2/3(Y - T) = 1,000 + 2/3(8,000 - 2,000) = 5,000
In equilibrium,
Y = C + I + G
8,000 = 5,000 + 1,200 -100r + 2,000
100r = 200
r = 2
The new equilibrium interest rate is 2 percent.
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