Economics 1022A/B Lecture Notes - Lecture 3: Diminishing Returns, Human Capital, Real Wages
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1) Assume there is a simple economy where people consume only 2 goods, food, and clothing. Further, assume that the market basket of goods used to compute the CPI consists of 100 units of food and 20 units of clothing.
|
Food |
Clothing |
2004 price per unit |
$8 |
$20 |
2005 price per unit |
$12 |
$40 |
Compute the percentage changes in the price of food and the percentage change in the price of clothing between 2004 and 2005.
Calculate the percentage change in the CPI between 2004 and 2005.
Do you think the CPI price changes affect all consumers in the economy to the same extent? Explain.
2) Calculate how much each of the following items is worth in terms of today's dollars using 180 as the price index for today.
a. In 1925, the CPI was 18 and the price of a movie ticket was $0.30.
b. In 1930, the CPI was 14 and a cook earned $20 a week.
c. In 1940, the CPI was 16 and a gallon of gas cost $0.20.
3) The table below uses data for 3 hypothetical countries. All the number values are in thousands. Complete the blank entries in the table below.
Country |
Adult Population |
Labor Force |
Employed |
Unemployed |
Unemployment Rate |
Labor-Force Participation Rate |
A |
120,000 |
60,000 |
4,500 |
|||
B |
28,000 |
3,000 |
60 |
|||
C |
70,000 |
40,000 |
10 |
4) The following table indicates U.S. real GDP data. Calculate real GDP per person for 1987 and 2005. Then use real GDP per capita to compute the percentage change in real GDP per person from 1987 to 2005.
Year |
Real GDP (2000 prices) (in million) |
Population (in million) |
1987 |
$6,435,000 |
243 |
2005 |
$11,092,000 |
296.6 |
In recent years, the BRIC (Brazil, Russia, India and China) countries have received much attention due to their growing importance in the world economy. Now that you are equipped with knowledge about macroeconomic data, you can take a first-hand look at how quickly these countries have been growing, how much inflation they have, and how developed they are when compared to the USA.
Brazil | Russia | India | China | USA | |
Nominal GDP in 2013 (local currency, Million) | 4,844,815 | 66,755,300 | 113,550,735 | 56,884,521 | 16,768,100 |
Nominal GDP in 2000 (local currency, Million) | 1,179,482 | 7,305,600 | 21,774,127 | 9,921,455 | 10,284,800 |
Price Level in 2013 (index 2010=100) | 124.12 | 121.63 | 132 | 111.1 | 106.8 |
Price Level in 2000 (index 2010=100) | 51.4 | 30.75 | 54.2 | 81 | 79 |
Population in 2013 (in Million) | 200.4 | 143.5 | 1,252 | 1,357 | 316.1 |
Population in 2000 (in Million) | 174.5 | 146.6 | 1,042 | 1,263 | 282.2 |
Dollar/Local Currency Exchange rate 2013 | 1/2.4 | 1/32.6 | 1/62.18 | 1/6.07 | 1 |
PPP Conversion Factor 2013 | 1/1.9 | 1/19.47 | 1/18.24 | 1/3.36 | 1 |
The PPP conversion factor is the price in US dollars of a basket of goods (chosen by the World Bank) in the USA divided by the price in local currency of a comparable basket in that country.
For each of the BRIC countries and the US, over the period 2000-2013, answer the following:
1.What was the average annual inflation rate?
2.What was the average annual growth rate of population?
3.What was the average annual growth rate of real GDP?
4.What was the average annual growth rate of real GDP per capita?
5.For each of the BRIC countries, in the year 2013, how did real income per capita compare to that in the US? (To make this comparison, report real GDP per capita for each country as a percentage of the US.) Report two answers, one based on market exchange rates and one adjusted for differences in purchasing power.