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Esercitazione assignment macroeconomics come preparazione all'esame di economics settimana 2...

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Home assignments 2nd week Pozzuoli Alex Matricola: 0054881

30/03/2020

1. CHAPTER 2 – EXERCISE 5 REAL GDP, GDP DEFLATOR AND RATE OF INFLATION a) 2009 Base year as the set of common prices Real GDP for 2009 and 2010 Real GDPt+1 = P1t * Q1t+1 + P2t * Q2t+1 + P3t * Q3t+1 Real GDP2009 = Nominal GDP2009 = P12009 * Q12009 + P22009 * Q22009 + P32009 *Q32009 = 2000 * 10 + 1000 * 4 + 1 * 1000 = 25000 Nominal GDP2010 = P12010 * Q12010 + P22010 * Q22010 + P32010 * Q32010 = 3000 * 12 + 500 * 6 + 1 * 1000 = 40000 Real GDP2010 = P12009 * Q12010 + P22009 * Q22010 + P32009 * Q32010 = 2000 * 12 + 1000 * 6 + 1 * 1000 = 31000 GDP DEFLATOR for 2009 and 2010 GDP DEFLATOR = Pt = Nominal GDPt / Real GDPt = €Yt / Yt GDP DEFLATOR2009 = P2009 = Nominal GDP2009 / Real GDP2009 = 25000 / 25000 = 1 GDP DEFLATOR2010 = P2009 = Nominal GDP2010 / Real GDP2010 = 40000 / 31000 = 1.29: RATE OF INFLATION from 2009 to 2010 INFLATION RATE = π = [(CPIt+1 – CPIt) / CPIt] * 100 (do it for the different baskets of goods) CPIt = Cost of Baskett / Cost of Baskett CPIt+1 = Cost of Baskett+1 / Cost of Baskett CPI2009 = 1 (for all the baskets of goods) Cost of Basket12009 = 2000 * 10 = 20000 Cost of Basket12010 = 3000 * 12 = 36000 CPI12010 = 36000 / 20000 = 1.8 INFLATION RATE1 = π1 = [(1.8 – 1) / 1] * 100 = 80% Cost of Basket22009 = 1000 * 4 = 4000 Cost of Basket22010 = 500 * 6 = 3000 CPI22010 = 3000 / 4000 = 0.5 1

INFLATION RATE2 = π2 = [(0.5 – 1) / 1] * 100 = -50% Cost of Basket32009 = 1 * 1000 = 1000 Cost of Basket32010 = 1 * 1000 = 1000 CPI32010 = 1000 / 1000 = 1 INFLATION RATE3 = π3 = [(1 – 1) / 1] * 100 = 0% Or INFLATION RATE = π = [(GDP DEFLATORt+1 – GDP DEFLATORt) / GDP DEFLATORt] * 100 INFLATION RATE = π = [(1.29 – 1) / 1] * 100 = 29% b) 2010 Base year as the set of common prices Real GDPI for 2009 and 2010 Real GDPI2009 = 3000 * 10 + 500 * 4 + 1 * 1000 = 33000 Real GDPI2010 = Nominal GDP2010 = 3000 * 12 + 500 * 6 + 1 * 1000 = 40000 GDP DEFLATORI for 2009 and 2010 GDP DEFLATORI2009 = 25000 / 33000 = 0.76 GDP DEFLATORI2010 = 40000 / 40000 = 1 RATE OF INFLATIONI from 2009 to 2010 INFLATION RATEI = πI = [(1 – 0.76) / 0.76] * 100 = 32% c. Why are the two rates of inflation different? Which one is correct? Explain your answer. The answers measure real GDP growth in different units. Neither answer is incorrect, just for example, as measurement in inches is not more or less correct than measurement in centimeters. Also, the inflation rate with 2010 base year is higher than the inflation rate with 2009 year because the GDP deflator in 2009 and 2010 with 2010 base year is lower than the GDP deflator in 2009 and 2010 with 2009 base year because in 2010 the GDP is higher due the increase of quantities and prices.

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2. CHAPTER 2 – EXERCISE 6 a) Real GDP for 2009 and 2010 with average price of each good over the two years Average P = (Pt + Pt+1) / 2 Average P1 = (2000 + 3000) / 2 = 2500 Average P2 = (1000 + 500) / 2 = 750 Average P3 = (1 + 1) / 2 = 1 Real GDP2009 = Nominal GDP2009 = Average P1 * Q12009 + Average P2 * Q22009 + Average P3 * Q32009 = 2500 * 10 + 750 * 4 + 1 * 1000 = 29000 Real GDP2010 = Nominal GDP2010 = Average P1 * Q12010 + Average P2 * Q22010 + Average P3 * Q32010 = 2500 * 12 + 750 * 6 + 1 * 1000 = 35500 b) By what percentage does Real GDP changes from 2009 to 2010 (growth rate)? g = [(Real GDP2010 / Real GDP2009) – 1] * 100 = [(35500 / 29000) – 1] * 100 = 22.41% OR g = [(GDPt+1 – GDPt) / GDPt] * 100 g = [(Real GDP2010 – Real GDP2009) / Real GDP2009] * 100 = [(35500 – 29000) / 29000] * 100 = 22.41% c) What is the GDP DEFLATOR in 2009 and 2010? Using the GDP DEFLATOR, what is the RATE OF INFLATION FROM 2009 TO 2010? GDP Deflator for 2009 and 2010 GDP Deflator2009 = Nominal GDP2009 / Real GDP2009 = 29000 / 33000 = 0.87 GDP Deflator2010 = Nominal GDP2010 / Real GDP2010 = 35500 / 40000 = 0.89 RATE OF INFLATION from 2009 to 2010 INFLATION RATE = π = [(GPD Deflator2010 – GDP Deflator2009) / GDP Deflator2009] * 100 = [(0.89 – 0.87) / 0.87] = 23%

2. CHAPTER 2 – EXERCISE 7 THE CONSUMER PRICE INDEX (CPI) a) Cost of consumer price basket in 2008 Q1 = 2 Q2 = 6 Cost of consumer price Baskett = Pt * Qt Cost of Basket12008 = 10 * 2 = 20 Cost of Basket22008 = 3 * 6 = 18 3

b) Cost of consumer price basket in 2009 and in subsequent years Cost of Basket12009 = 11 * 2 = 22 Cost of Basket22009 = 3.30 * 6 = 19.8 Cost of Basket12010 = 11.55 * 2 = 23.1 Cost of Basket22010 = 3.47 * 6 = 20.82 Cost of Basket12011 = 11.55 * 2 = 23.1 Cost of Basket22011 = 3.50 * 6 = 21 Cost of Basket12012 = 11.55 * 2 = 23.1 Cost of Basket22012 = 2.5 * 6 = 15 Cost of Basket12013 = 11.55 * 2 = 23.1 Cost of Basket22013 = 3.47 * 6 = 20.82 c) Represent the cost of the consumer price basket as an index number in the year 2008 to 2013 (CP12008 and CP22008 = 100). CPIt = (Cost of Baskett / Cost of Baskett-1) * 100 CPI12008 = 100% CPI22008 = 100% CPI12009 = (22 / 20) * 100 = 110% CPI22009 = (19.8 / 18) * 100 = 110% CPI12010 = (23.1 / 22) * 100 = 105% CPI22010 = (20.82 / 19.8) * 100 = 105.15% CPI12011 = (23.1 / 23.1) * 100 = 100% CPI22011 = (21 / 20.82) * 100 = 100.86% CPI12012 = (23.1 / 23.1) * 100 = 100% CPI22012 = (15 / 21) * 100 = 71.43% CPI12013 = (23.1 / 23.1) * 100 = 100% CPI22013 = (20.82 / 15) * 100 = 138.8%

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d) Annual rate of inflation using the percent change in the value of the index number between each year from 2009 through 2013 Q1 = PIZZA and INFLATION RATE = π = (CPIt – CPIt-1) * 100 Year 2008 2009 2010 2011 2012 2013

Consumer Price Index 2008 = 100 100 110 105 100 100 100

Inflation Rate // 10% -5% -5% 0% 0%

Q2 = GAS and INFLATION RATE = π = [(CPIt – CPIt-1) / CPIt-1] * 100 Year 2008 2009 2010 2011 2012 2013

Consumer Price Index 2008 = 100 100 110 105.15 100.86 71.43 138.8

Inflation Rate // 10% -4.85% -4.29% -29.43% 67.37%

e) Is there a year where inflation is negative? Why does this happen? In many years the inflation is negative. This means that between two years, the CPI decrease because the consumer price basket was lower than the previous year. For example, the inflation rate in 2012 for the gas was -29.43% because in 2012 the price of gas por gallon was very low ($2.50).

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