Task: Individual assignment
· Exercises have to be explained and calculations shown.
1. Consider an economy that produces only pens. In year 1, the quantity produced is 4 bars and the price is 5 €. In year 2, the quantity produced is 5 bars and the price is 6. In year 3, the quantity produced is 6 bars and the price is 7. Year 1 is the base year.
a. What is nominal GDP for each of these three years?
b. What is real GDP for each of these years?
c. What is the GDP deflator for each of these years?
d. What is the percentage growth rate of real GDP from year 2 to year 3?
e. What is the inflation rate as measured by the GDP deflator from year 2 to year 3?
2. Suppose that people consume only three goods, as shown in this table:
Raquets Nets bottle of water
2019 price 3 € 5 € 2 €
2019 quantity 200 200 300
2020 price 3 7 3
2020 quantity 200 200 300
a. What is the percentage change in the price of each of the three goods?
b. Using a method similar to the CPI, compute the percentage change in the overall price level.
c. If you were to learn that a bottle of water increased in size from 2019 to 2020, should that information affect your calculation of the inflation rate? If so, how?
3. Read the following text:
Many studies have examined the effect of unemployment insurance on job search. The most persuasive studies use data on the experiences of unemployed
individuals rather than economy-wide rates of unemployment. Individual data often yield sharp results that are open to few alternative explanations.
One study followed the experience of individual workers as they used up their eligibility for unemployment-insurance benefi ts. It found that when unemployed
workers become ineligible for benefi ts, they are more likely to fi nd jobs. In particular, the probability of a person fi nding a job more than doubles when his
or her benefi ts run out. One possible explanation is that an absence of benefi ts increases the search effort of unemployed workers. Another possibility is that
workers without benefi ts are more likely to accept job offers that would otherwise be declined because of low wages or poor working conditions.
Additional evidence on how economic incentives affect job search comes from an experiment that the state of Illinois ran in 1985. Randomly selected new claimants for unemployment insurance were each offered a $500 bonus if they found employment within 11 weeks. The subsequent experience of this group was compared to that of a control group not offered the incentive. The average duration of unemployment for the group offered the $500 bonus was 17.0 weeks, compared to18.3 weeks for the control group. Thus, the prospect of earning the bonus reduced the average spell of unemployment by 7 percent, suggesting that more effort was devoted to job search. This experiment shows clearly that the incentives provided by the unemployment-insurance system affect the rate of job finding.
a. Give the main ideas in bullet points. (min =6)
b. Give your point of view of each one supported with economic terms /principles.
4. Suppose one economy decides to reduce investment and increase consumption.
a. How this changes affect economic growth?
b. What groups in society would benefit from this change? What groups might be hurt?
Formalities:
· Wordcount: < 1000
· Font: Arial 12 pts.
· Text alignment: Justified.
· The in-text References and the Bibliography have to be in Harvard’s citation style.
· This assignment is 40 % of total grade
Submission: SUNDAY 14th March.
Weight:This task is a 40% of your total grade for this subject.
It assesses the following learning outcomes:
· Outcome 1: Understand forces determining macroeconomic variables such as GDP, unemployment, inflation
· Outcome 2: Apply macroeconomic terminology and assess macroeconomic policy suggestions
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