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ECON 410.502 Macroeconomic Theory Spring 2010 Instructor: Guangyi Ma Extra Problems #1 Suggested Answers and Comments Notice: (1) This set of extra problems contains 25 multiple-choice problems and 6 analytic (short-answer) problems. These problems are not homework and will not be graded. The aim of these problems is to provide you with additional exercises. (2) I will give solutions of the assignment and the “extra-problem” set after the due date. Page 1 Problem 1~25: Multiple choice problems 1. C 2. A 3. D This problem helps you pay attention to the difference between variables and functions. First, whether prices (wages are prices for labor) are assumed to be flexible or 4. C sticky depends on the time…show more content…
Page 3 28. Economic statistics are not perfect. Explain at least one way in which each of the following statistics as currently calculated in the United States fails to completely or accurately measure the corresponding economic concept (in parentheses): a. real GDP per person (economic well-being); b. CPI (cost of living); c. unemployment rate (involuntary unemployment). Ans. a. The official measure of GDP does not include measurements of leisure time available, nonmarket production, production in the underground economy, the distribution of income, or production externalities (e.g., pollution). b. The CPI does not allow substitution away from products with rising prices and has difficulty distinguishing between price changes and quality changes in products included in the index. c. The official unemployment rate does not take into account discouraged workers, parttime workers who desire full-time employment, and workers employed in jobs not matching their skill level, such as taxi drivers with PhDs in physics. In short, it is difficult to exactly measure these economic variables. The prevalence of measurement error in economic variables is one of the difficulties faced by economists. 29. Nominal GDP ($ billions) Real GDP ($ billions 2000 chain-weighted) 2009 $14,700 $12,100 2010 $15,200 $11,900 Based on the data in the table above, explain what happened to output and prices in the economy between 2009 and 2010. Ans. Real

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