Transcript ECON 102 Tutorial: Week 11

ECON 101 Tutorial: Week 14
Shane Murphy
[email protected]
Office Hours: Monday 3:00-4:00 – LUMS C85
Outline
• Roll Call
• Problems
• Exam Notes
Chapter 20: Problem 5
Year
Price of Quantity
milk
of milk
Price of Quantity
honey
of honey
Here are some data
2013 1
100
2
50
from the land of milk and 2014 1
200
2
100
2015 2
200
4
100
honey.
a. Compute nominal GDP, real GDP, and the GDP
deflator for each year, using 2013 as the base
year.
b. Compute the percentage change in nominal GDP,
real GDP, and the GDP deflator in 2014 and 2015
from the preceding year. For each year, identify
the variable that does not change.
c. Did economic well-being rise more in 2014 or
2015?
Chapter 20: Problem 5
Chapter 20: Problem 5
Chapter 20: Problem 7
One day Boris the Barber, plc, collects €400 for
haircuts. Over this day, his equipment depreciates in
value by €50. Of the remaining €350, Boris sends
€30 to the government in sales taxes, takes home
€220 in wages, and retains €100 in his business to
add new equipment in the future. From the €220
that Boris takes home, he pays €70 in income taxes.
Based on this information, compute Boris’
contribution to the following measures of income:
GDP, net national product, national income, personal
income, and disposable personal income.
Chapter 20: Problem 7
a. GDP equals the dollar amount Boris collects,
which is €400.
b. NNP = GDP – depreciation = €400 - €50 = €350.
c. National income = NNP - sales taxes = €350 - €30
= €320.
d. Personal income = national income - retained
earnings = €320 - €100 = €220.
e. Disposable personal income = personal income personal income tax = €220 - €70 = €150.
Chapter 21: Problem 1
Suppose that people
consume only three goods,
as shown in this table:
Tennis Tennis
Cola
balls
racquets
2014 price
2
40
1
2014 quantity
100
10
200
2015 price
2
60
2
2015 quantity
100
10
200
a. What is the percentage change in the price of
each of the three goods? What is the percentage
change in the overall price level?
b. Do tennis racquets become more or less
expensive relative to cola? Does the well-being of
some people change relative to the well-being of
others?
Chapter 21: Problem 1
Suppose that people
consume only three goods,
as shown in this table:
Tennis Tennis
Cola
balls
racquets
2014 price
2
40
1
2014 quantity
100
10
200
2015 price
2
60
2
2015 quantity
100
10
200
a. The price of tennis balls increases 0 percent; the price of
tennis racquets increases 50 percent [=(€60-€40)/€40 x
100%]; the price of Cola increases 100 percent [= (€2 €1)/€1 x 100%].
b. Tennis racquets are less expensive relative to Cola, since
their price rose 50 percent while the price of Cola rose 100
percent. The well-being of some people changes relative to
the well-being of others. Those who purchase a lot of Cola
become worse off relative to those who purchase a lot of
tennis racquets or tennis balls.
Chapter 21: Problem 7
In some years in some countries, income tax
brackets are not increased in line with inflation. Why
do you think the government might do this?
When bracket creep occurs, inflation increases
people's nominal incomes, pushing them into higher
tax brackets, so they have to pay a higher proportion
of their incomes in taxes, even though they are not
getting higher real incomes. As a result, the
government’s real tax revenue rises.
Chapter 21: Problem 9
Suppose that a borrower and a lender agree on the
nominal interest rate to be paid on a loan. Then inflation
turns out to be higher than they both expected.
a. Is the real interest rate on this loan higher or lower
than expected?
When inflation is higher than was expected, the real
interest rate is lower than expected.
b. Does the lender gain or lose from this unexpectedly
high inflation? Does the borrower gain or lose?
Since the real interest rate is lower than was expected,
the lender loses and the borrower gains. The borrower
is repaying the loan with money that is worth less than
was expected.
Exam Notes
• I should have finished grading by this point
and might have a few words to say about the
second exam.
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