Ch11-HW

1) A country’s entire economy in 2001 and 2002 was characterized by the following table:

 

2001

2002

 

Price

Quantity

Price

Quantity

Burritos (Exported)

15

1000

20

1200

CDs (Domestically produced and consumed)

5

2000

10

2200

Didgeridoos (Imported)

50

100

100

20

 

A)   Calculate nominal GDP in 2001 and 2002.

B)   Calculate real GDP in 2001 and 2002 using year 2001 prices. What was the size of GDP growth between the two years? What is the GDP deflator in 2002? How much higher were prices in 2002 compared to 2001?

C)   Calculate real GDP in 2001 and 2002 using year 2002 prices. What was the size of GDP growth between the two years? What is the GDP deflator in 2001? How much higher were prices in 2002 compared to 2001?

D)   Decompose 2001 GDP into its components (C, I, G, X, M).

 

2)  Mark Twain’s A Connecticut Yankee in King Arthur’s Court is tale about a 19th century man (Hank, the narrator) who gets hit in the head and instantly transported back in time to 6th century England (where King Arthur and the Knights of the Round Table reign). While there, he becomes a close advisor to the king, building many factories and improving trade within Camelot. In this excerpt, Hank visits a remote area of the kingdom that has not experienced these reforms. An argument between Hank and the villagers reveals that they lack understanding of some important economic concepts. Explain. [Read from the paragraph beginning “The king got his cargo…” through the last page provided].

 

3) Since GDP is a measure of national income, economists have traditionally employed GDP per person as a proxy for national welfare (i.e., “well-being” or “happiness”).

A) What does “Happiness (and How to Measure It)” in the December 23, 2006 article (p. 13) in The Economist have to say about this approach? Does the article suggest economists and policy makers should pursue GDP growth?

(NOTE: If you do an electronic journal search through the library, this article appears in the Dec 23, 2006 issue. If you do a search on the Economist’s homepage, it appears in the Dec 19, 2006 issue. I imagine the print addition also is Dec 19, 2006. In all cases, the article should be the same. Use the library’s resources to located a free version).

B)   Name a country, other than the US, in which you might like to live. Where does this country rank according to the happiness index at http://www.happyplanetindex.org/list.htm? Do you think this organization provides reliable measures of cross-country happiness?

C)   What alternatives to GDP might explain the desirability or attractiveness of a country?