Macroeconomic Assignment1

1Your answers MUST be typed.Question 1: GDP and the CPI. Consider an economy that only produces threecommodities: bread, tractors, and haircuts. The following table shows a time series of thequantities produced and the prices at which they were sold.Expenditure DataYearBread Tractors HaircutsPrice Quantity Price Quantity Price Quantity2011 $100 8000 $100 500 $100 40002012 $120 9000 $100 500 $120 45002013 $100 8000 $110 600 $120 5000Webegin by using the data to compute GDP and related measures.• Compute the nominal GDP (NGDP) for each year.• Compute the growth rates in NGDP.• Compute real GDP (GDP) at 2011 prices each year.• Compute the growth rates in GDP.• Compute the implicit GDP deflator (P) each year.• Compute the inflation rates in the GDP deflator.GDPYear Nominal GDP Real GDP GDP Deflator CPI201120122013Growth Rates and Inflation RatesYear NGDP RGDP Deflator CPI2011-20122012-2013According to the Bureau of Official State Statistics, a typical household consumed 2boules of bread and 1 haircut in 2011.• Compute the CPI for this goods bundle for each year.• Compute the corresponding CPI inflation rates.2Question 2. Production Functions Consider the production function which describesoutput Y from the employment of two factor inputs capital K and labour L,Y = F (K, L) = AK αL1−α = K 0.5 L0.5 ; i.e., A = 1 and α = 0.5.• Show that this production function has constant returns to scale.• Use the graph paper below to plot the graph of Y for values of K between 0 and 4,holding L constant at a value of one.• Does this function show diminishing MPK?3Question 3. Some Canadian Data. Statistics Canada makes a lot of recent macrodata available online for free. Starting point for finding the data:– http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/indi02a-eng.htm –For Canada find (some of this information may be reported directly on the page; some ofit will require you to click through to the appropriate footnote table):• Nominal GDP (SAAR at market prices) and Real GDP (SAAR chained) for the2nd quarter of 2015.• Compute the percentage rate of annual growth in Real GDP between 2007 and yourobserved data point.• The GDP implicit chain price index in the 2nd quarter of 2015; compute its growthrate since 2007.• The exchange rate in December 2015 in $C per $US; compute the exchange rate in$US per $C.