Problem Set 7 ECON 101 You may work on the problem set individually or with up to 3 of your classmates. If you choose to work with a group, you all need to be attempting the problems and discussing them together or you will miss out on learning the concepts, which is the entire point of doing these problem sets. You may submit an assignment individually (including the names of those students you worked with) or you may submit as a group making sure that all of your names are clearly indicated at the top of the first page and added on Gradescope. 1. For each of the following statements, decide if the statement is true or false and explain why: A) If workers at a customer service call center in Durham, NC get laid-off because their company has moved the call center to India; this is an example of cyclical unemployment. B) "Full employment" occurs when every working aged individual in the economy is employed. 2. The Consumer Expenditure Survey finds that a typical consumer in the U.S. buys 50 litres of soda and 80 small pizzas each year. In 2011 a litre of soda cost $1 and a small pizza cost $5. In 2016 a litre of soda cost $1.20 and a small pizza cost $6. A) Using 2011 as the base year, what is the CPI in 2011? B) Using 2011 as the base year, what is the CPI in 2016? C) Calculate inflation between 2011 and 2016. D) If you were making $10/hr in 2011, how much would you have to make in 2016 for your purchasing power to remain constant? 3. Canadia, a small country between the US and Canada, produces only maple syrup and hot cocoa. A typical household consumes is 10 liters of maple syrup and 20 gallons of hot cocoa per year, and the table below shows Canadia's production of maple syrup and hot cocoa from 2010 through 2012: Maple Syrup Hot Cocoa Quantity Price Quantity Price (liters] (gallons) 2010 100 $20 200 $5 2011 120 $25 40 $8 2012 130 $35 600 $10 A) Use 2011 as the base year and calculate inflation between 2010 and 2012 using the CPIs for this nation. B) Using 2011 as the base year, calculate inflation between 2010 and 2012 using the GDP deflators for this nation. C) In one sentence or less, explain why these measures of inflation are not necessarily equal. D) The federal government adjusts transfer payments to reflect the cost of living. Which of the measures should the government use to index transfer payments? Why? E) If the federal government was paying the average Social Security recipient in Canadia $500/month in 2010, how much would the government have to pay Social Security recipients in 2012 so that they can afford the same lifestyle as in 2010?4-. The table below lists the real GDP/capita [in 20055) for Australia, Cameroon, and Mexico from 1960-2000. Use this information to calculate the following: Australia Cameroon Mexico 1960 $12,003 $1,900 $4,421 19'5\") $16,646 $1,374 $6,169 1980 $20,014- SZJBB $9,263 1990 $23,130 $2,?10 $3,551 2000' $30,124- SZAJl- $1 0,360 A] Calculate the growth rates in real GDPfcapita from 1960-19170, 1970-19 30, 1980-1990, and 1990-2000 for each country. B] For each country and decade. use the rule of 70 to gure out how many decades it. would take for real GDPfcapita to double [or halve) at that growth rate. (3] Assume the growth races between 1990 and 2000 were to persist into the future. In whatyear would real GDPfcapita be twice the level itwas in 2000 for each country? 5. Draw an Aggregate Production Function for the US. And indicate the current state of the economy at point A. Use the mode] to explain what would happen to real GDPjaapital as a result of each of the following situations: A) B) C) D] The US makes college/trade school tuition free for everyone Tesla develops a battery that can power machines using half as much energy and is widely adopted in the US US rms increase the number of production facilities by 25% A particularly active hurricane season destroys shipping facilities along the Eastern coast of the US
