ECO 202 (Section: LEC5101) Test 1

Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit

ECO 202 (Section: LEC5101) Test 1

1. (20 pts) Consider in an economy with two consumption goods and only one investment goods, use the table and answer the question below:

(a) (3 pts) Calculate the real consumption, real investment and real GDP in both year, using the price in 2012.

(b) (3 pts) Calculate the real consumption, real investment and real GDP in both year, using the price in 2013.

(c) (5 pts) Calculate the Laspeyres, Paasche, and Fisher indices for the changes in real consumption, real investment, and real GDP from 2012 to 2013.

(d) (5 pts) Calculate Real consumption, Real investment and Real GDP in chained prices in year 2012, benchmarked to 2013.

(e) (4 pts) Which of the three growth rates you computed above would you think is most relevant for evaluating the change in real GDP? Explain in 3-5 sentences.

2. (20 pts) Suppose that country A is growing at 2% per year, and country B is growing at 5%. In the year 1960, the GDP per capita of country A is $20,000, and the GDP per capita of country B is $10,000.

(a) (4 pts) What would be the GDP per capita be in each country in 20 years? in 50 years?

(b) (12 pts) How long would it take country B to catch up with coun-try A in term of GDP per capita? Also, draw a figure with GDP per capita on the y-axis and year on the x-axis to illustrate the case. Clearly label all the axis and important points of interest.

(c) (4 pts) Country A has experienced a rapid economic growth due to the discovery of valuable resources. However, to enable the extraction of these resources, the government has granted exclu-sive ownership and resource rights to only a select few individuals (who have the capital and technology to extract the resources). What economic costs might Country A potentially be incurring as a result of this arrangement? Explain in 3-4 sentences.

3. (15 pts) Suppose the production function at the core of the production in Ch.4 is given by The firm pay r for each unit of capital use and w for each unit of labour use. Both capital and labour are supplied inelastically, they are supplied at and for any given price.

(a) (4 pts) Calculate the MPK and MPL.

(b) (4 pts) Shows the hiring rules for the capital and labour using answer from part a).

(c) (5 pts) Solve for the K, L, Y , r and w.

(d) (2 pts) How should we interpret an increase in the parameter ? Explain in 2-3 sentence.

4. (10 pts) Do the following production functions exhibit increasing, constant, or decreasing returns to scale in both K (capital) and L (labor)? (v is a fixed positive number) Show all the steps. Stating the final conclusion alone would not grant full credit for this question.

(a) (3 pts)

(b) (3 pts)

(c) (4 pts)

5. (10 pts) Lemonland GDP per Capita in 2020 was $20,000 Lemonade Dollar, while Orangeland GDP was $70,000 Californian Dollar. The exchange rate in 2020 was 2 Californian Dollar per Lemonade Dollar. Orangeland turns out to have lower prices than the Lemonland: the price level in Orangeland (converted to Lemonade Dollar) divided by the price level in the Lemonland was 0.7 in 2020.

(a) (2 pts) What is the ratio of Lemonland GDP to Orangeland GDP if we don’t take into account the differences in relative prices and simply use the exchange rate to make the conversion?

(b) (4 pts) What is the ratio of the real GDP in Lemonland to real GDP in the Orangeland in common prices?

(c) (4 pts) Which method should we employ when comparing eco-nomic performance between these two countries, and why? Please provide a brief explanation in 2-3 sentences.