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Questions - Module1

1. The document provides economic data for the nation of Balencia for 2010, including private consumption, investment, government purchases, exports, imports, foreign worker earnings, foreign capital rent payments, and foreign aid. It asks the reader to calculate Balencia's GDP, GNI, GNDI, and current account balance. 2. Foodland produces 4 products - bread, milk, sugar, salt. Production and price data is given for 2000 and 2010. The reader is asked to calculate Foodland's nominal and real GDP growth between those years and discuss if citizen well-being improved. 3. An expression for calculating the consumer price index (CPI) of a country is shown using the quantity and

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Siddharth Gupta
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74 views2 pages

Questions - Module1

1. The document provides economic data for the nation of Balencia for 2010, including private consumption, investment, government purchases, exports, imports, foreign worker earnings, foreign capital rent payments, and foreign aid. It asks the reader to calculate Balencia's GDP, GNI, GNDI, and current account balance. 2. Foodland produces 4 products - bread, milk, sugar, salt. Production and price data is given for 2000 and 2010. The reader is asked to calculate Foodland's nominal and real GDP growth between those years and discuss if citizen well-being improved. 3. An expression for calculating the consumer price index (CPI) of a country is shown using the quantity and

Uploaded by

Siddharth Gupta
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Macroeconomics

Practice Problems
Data in Macro

1. The tiny nation of Balencia has huge reserves of diamond. In 2010, Balencia spent $100
billion on private consumption, $50 billion on investment and $70 on government pur-
chases. During the same year, Balencia imported goods and services worth $40 billion
and only exported diamonds worth $80 billion. Foreign workers working in Balencian
diamond mines earned a total of $2 billion. Balencia also paid $8 billion as rent on the
foreign capital that has been invested in its diamond industry. Balencia did not earn any
income from abroad. Being a developing country, Balencia also received foreign aid
worth $10 billion from the World Bank.

(a) Compute Balencia’s GDP, GNI and GNDI.

(b) Also compute Balencia’s CA.

(c) Is Balencia a net lender? If yes, how much is Balencia lending to other countries?

2. Foodland produces four products – bread, milk, sugar and salt. Treat the year 2000 as the
base year. The following table records the output and price of these four products in the
years 2000 and 2010:

Bread Milk Sugar Salt


quantity 10 20 5 5
2000
price 5 2 1 1
quantity 5 20 7 4
2010
price 7 3 2 1

(a) Compute the growth in Foodland’s nominal GDP between the years 2000 and 2010.

(b) Compute the growth in Foodland’s real GDP between the years 2000 and 2010.

(c) Assuming a constant population, do you think the well-being of Foodland’s citizens
improved between 2000 and 2010? Discuss.

1
3. The consumption bundle of a typical consumer in a country consists of N goods. Let pi
and qi denote respectively the price and quantity of good i today, while p0i is the price of
good i in some base period.
(a) Show that the current CPI of the country can be written as

CP I = ΣN
i=1 ωi p̂i × 100,

where ωi is the share of good i in total consumption expenditure using the base year
prices, i.e., ωi = p0i qi /ΣN 0 0
i=1 pi qi , and p̂i = pi /pi .

(b) Suppose prices change in a way such that for goods i = 1, ....., n

pi = (1 + α)p0i ,

while for goods i = n + 1, ....., N

pi = (1 − β)p0i ,

where 0 < α < 1 and 0 < β < 1. Let Σni=1 ωi be denoted by ω̄. Then show that
CP I > 100 if
β
ω̄ > .
α+β

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