Professor Matthew Festa
EC207 – Macroeconomics.
Due in class Tuesday Oct 2nd
1) (2 points)The Kingdom of Rohan has an economy made up of only two goods: Horses and spears. In the Third Age 1997 output and prices were
100 spears for $1.00 a spear
200 horses for $2.00 a horse.
In TA1998, the economy increased the output of both in order to prepare for war against the Dark Lord. Output and prices in 1998 were
200 spears for $2.00
300 horses for $3.00
Based on the information given above, calculate the percentage increase in GDP from 1997 and 1998 in BOTH nominal and real terms. (for real GDP, use 1998 prices)
2) (1 point) Calculate the unemployment rate based on the information given below:
The labor force participation ratio 200 million
Unemployed people = 10mn
Please provide your answer in percentage terms
3) (2 points) Please name and explain in full sentences the 3 types of unemployment and what they are.
4) (1 point) The CPI index in 2000 was 100. In 2001 the CPI index was 110. What is the percentage increase in the overall price level from 2000 to 2001?
5) High inflation is damaging to the economy from the perspective of the fixed wage earner and a lender (i.e. someone who lends money) because? (2 points)
6) Using a graph (in English, zero credit for no graph ) please explain the effects of the following on price and quantity. (2 points)
A new technology developed in which mass machines will now produce HDTV’s instead of the man made way in which these sets were made previously. At the same time Cable television announced to all customers that all stations will now have HDTV capability if the user has a compatible television. What is the effect of price and quantity of these 2 bits of information? (Hint: think carefully)