Problem Set 1

Makroekonomika 1
Due Date 26 August 2019

1. Listed below are the events or transactions occurred in the US, in 2004. For each event/transaction,
indicate whether or not it contributes to the macroeconomic variables C; I; G; EX; IM and if yes,
which one (or ones). Write down your answer by writing "none" or "Variable=transaction", for
example "C=+$1,000" or "I=-$1,000".

a. George buys a jar of cookies for $10.

b. George bakes his own cookies using the ingredients he has in his kitchen.
c. Boeing manufactures a new airplane and sells it to Air France for $1,200,000.
d. Boeing manufactures a new airplane and sells it to Jet Blue (a US airline) for $1,200,000.
e. The US government pays $840 in retirement bene_ts to George's father, who lives in New
York.
f. Nicholas buys a Nintendo Wii for his niece, spending $150 at Walmart, which sells the
console to him out of its inventory.
g. Nicholas buys another Nintendo Wii for $200 directly from a store in Japan.
h. A new teacher, Stephanie, purchases a house from a departing colleague for $220,000.
i. Brian, an electrician, is paid $300 for installing a security system in house in Los Angeles,
California.
j. The same Brian is paid $300 for installing a security system in a grocery store in Dallas,
Texas.
k. Brian, again, is paid CA$500 for installing a security system in a house in Toronto, Canada.
l. Milton is paid $1,500 by the US government for giving 3 lectures in economics in the US
Congress.
m. The Flying Saucer pub uses $2 of materials from its inventory to make a sandwich that it
sells for $6.
n. David pays $3,000 for leaving his dog at a boarding kennel for 30 days.
o. The same David, stays at home and take care of his dog himself on Thanksgiving day.
p. General Motors manufactures a Chevrolet Camaro during 2004, and sells it to David for
$33,000 on January 31, 2005.
q. Amazon and the US Government Trade Agencies build two new identical warehouse
which each costs $180,000 to build.
r. Michael Jackson, not his real name, buys a pack of marijuana for $100.
s. Michael Jackson, still not his real name, pays $1,000 to the City of Baltimore in bail.
t. Glenn, an attorney and a resident of the City of Baltimore, collects a fee of $10,000 for
defending Michael Jackson.
u. Peter is unemployed. He lives in his house and drives his car, which he own. Renting a
similar house would have cost him $14,000/year and renting a similar car would have cost
him $1,800.

2. What would be the 2004 US GDP, if all of the events/transactions in Question 1 happened in
2004? What would be the GNP?
3. Assume that all of the goods mentioned below are the only goods produced and consumed in
the economy. Let the base year be 2000, calculate the various economic indicator below:
 a. The cost of consumption basket from 2000 through 2003, the CPI for each year, and the
inflation rate based on the CPI for all years.
b. The nominal GDP for each year, the real GDP for each year using the 2000 prices take 2002
as the base year for fridge, the GDP deflator for all years, and the inflation rate based on the
GDP deflator for all years.
c. How do you explain the differences on the inflation rate calculated using CPI (question 3.a.)
and GDP deflator (question 3.b.)?

4. Suppose that an economy's production function is Cobb Douglas (𝑌 = 𝐴𝐾 𝛼 𝐿1−𝛼 ) with a parameter
α= 0.3. What fractions of income do capital and labor receive?