💲💲
Cyrus
B23090117019
Cause of I can not find my Apple Pencil
I had to type and take pictures of the Problem Set 1
answer, hope for forgiveness.
Macroeconomics (BA106)
Deadline: 6 PM on Sunday March 3rd, 2024
* Please write clearly; illegible answers will receive no credit.
* SHOW ALL WORK. No credit will be given if you report only the final answers without showing
formulas and calculations where appropriate.
* Note that if you copy your answers from one of your classmates, or from any outside source, it will be
reported to the academic judiciary and a grade of F will be assigned.
* Late assignments will not be accepted.
1. A farmer grows wheat, which she sells to a miller for $100. The miller turns the wheat into flour,
,
which she sells to a baker for $150. The baker turns the wheat into bread, which she sells to
consumers for $180. Consumers eat the bread.
(a) (7 points) What is GDP in this economy? Explain.
The finally Consume of bread which be sold 180 is GDP (C).
Because GDP just calculate the Final Goods, the value yielded
during production is already included in the final one.
(b) (7 points) Value added is defined as the value of a producer’s output minus the value of the
intermediate goods that the producer buys to make the output. Assuming there are no intermediate
goods beyond those described above, calculate the value added of each of the three producers.
From Nature to Farmer: 100-0=100
From Farmer to Miller: 150-100=50
From Miller to Baker : 180-150=30
(c) (7 points) What is total value added of the three producers in this economy? How does it compare
to the economy’s GDP? Does this example suggest another way of calculating GDP?
Total Value: 100+50+30=180
We can calculate the GDP by record total value added of the any
producer within economy.
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2. A dozen eggs cost $0.88 in January 1980 and $1.77 in January 2018. The average hourly wage for
production and nonsupervisory workers was $6.57 in January 1980 and $22.36 in January 2018.
(a) (7 points) By what percentage did the price of eggs rise?
(1.77-0.88)/0.88×100%=101%
The Price of Eggs raised 101%.
(b) (7 points) By what percentage did the wage rise?
(22.36-6.57)/6.57×100%=240%
The wage raised 240%
(c) (7 points) In each year, how many minutes did a worker have to work to earn enough to buy a dozen
eggs?
0.88/6.57=0.13 hour=7.8 min
1.77/22.36=0.08hour=4.8 min
In 1980, a worker have to work 7.8 min to get a dozen eggs.
In 2018, a worker have to work 4.8 min to get a dozen eggs.
(d) (7 points) Did workers’ purchasing power in terms of eggs rise or fall?
Workers’ purchase power for eggs is rise.
3. Suppose that a borrower and a lender agree on the nominal interest rate to be paid on a loan. Then
inflation turns out to be higher than they both expected.
(a) (7 points) Is the real interest rate on this loan higher or lower than expected?
Lower than expected.
(b) (7 points) Does the lender gain or lose from this unexpectedly high inflation? Does the borrower
gain or lose?
Inflation favors debtors over creditors.
So, lender will lose and borrower will gain.
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(c) (7 points) Inflation during the 1970s was much higher than most people had expected when the
decade began. How did this unexpectedly high inflation affect homeowners who obtained fixed-rate
mortgages during the 1960s? How did it affect the banks that lent the money?
That reduced homeowner’s liability pressure.
The bank income form loan interest rate shrinked.
4. (10 points) Suppose GDP is $8 trillion, taxes are $1.5 trillion, private saving is $0.5 trillion, and
public saving is $0.2 trillion. Assuming this economy is closed, calculate consumption, government
purchases, national saving, and investment.
If the picture not clearly,
you can see the end page
to clarify.
5. A company has an investment project that would cost $10 million today and yield a payoff of $15
million in 4 years.
(a) (10 points) Should the firm undertake the project if the interest rate is 11 percent? 10 percent? 9
percent? 8 percent?
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(b) (10 points) Can you figure out the exact interest rate at which the firm would be indifferent between
undertaking and forgoing the project? (This interest rate is called the project’s internal rate of return.)
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