Assignment One
1.Suppose that the annual rates of growth of real GDP of Econoland over a five-
year period were as follows: 3 percent, 1 percent, -2 percent, 4 percent, and 5
percent.
- Q: What was the average of these growth rates in Econoland over these 5
years?
A: average would be: 2.2%
- Q: What term would economists use to describe what happened in year 3?
A: inflation
- Q: If the growth rate in year 3 had been a positive 2 percent rather than a
negative 2 percent, what would have been the average growth rate?
A: 3%
2. Suppose that Glitter Gulch, a gold mining firm, increased its sales revenues on
newly mined gold from $100 million to $200 million between one year and
the next.
-Q: Assuming that the price of gold increased by 100 percent over the same period,
by what numerical amount did Glitter Gulch’s real output change?
A: the real output has not changed
-Q: If the price of gold had not changed, what would have been the change in Glitter
Gulch’s real output?
A: it would be 100 million
3.A mathematical approximation called the rule of 70 tells us that the number of
years that it will take something that is growing to double in size is
approximately equal to the number 70 divided by its percentage rate of
growth. Thus, if Mexico’s real GDP per person is growing at 7 percent per
year, it will take about 10 years (= 70/ 7) to double. Apply the rule of 70 to
solve the following problem. Real GDP per person in Mexico in 2005 was
about $11,000 per person, while it was about $44,000 per person in Canada.
-If real GDP per person in Mexico grows at the rate of 5 percent per year, about how
long will it take Mexico’s real GDP per person to reach the level that Canada was at in 2005? (Hint: How many times would Mexico’s 2005 real GDP per person
have to double to reach Canada’s 2005 real GDP per person?)
4.What is the value added by all the firms A–E from the production of a product as
described below? What did each firm add separately in value and what
does it total?
Stage of production Sales value of product
Firm A

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