Masaryk University – Brno Department of Economics – Faculty of Economics and
Administration Lipová 507/41a, Pisárky, Brno
Tutor: Ashot Tsharakyan (ashichek@gmail.com)
Macroeconomics 1 – Spring Semester 2012
HOMEWORK ASSIGNMENT 1
Deadline to submit: 6.04.2012, 8:30 a.m. (in class)
Problem 1 (3 points)
1. You have the following information about the economy
Consumption 400
Government budget balance -500
Taxes 200
Net domestic investment 800
Depreciation 150
Export 300
Import 450
Factor incomes of domestic factors of production used abroad 200
Factor incomes of foreing factors of production used in the given
country 300
Indirect taxes 50
Subsidies 30
Retained earnings 100
Income taxes and social insurance 120
Government social and interest payments to households 45
Calculate government purchases, net export, gross domestic investment, gross
domestic product, gross national product, net national product, national income and
personal income.
Problem 2 (1 point + 0.5 BONUS)
Consider the following
data on U.S. GDP:
Year
Nominal GDP
(in billions)
GDP Deflator
(base year 1992)
1996 7,662 110
1997 8,111 112
a. (0.5 point) What was real GDP in 1996 measured in 1992 prices? What was real GDP in
1997 measured in 1992 prices?
b. (0,5 point) What was the growth rate of nominal GDP between 1996 and 1997? What was
the growth of real GDP between 1996 and 1997?
c. (0.5 BONUS) Was the growth rate of nominal GDP higher or lower than the growth rate of
real GDP? Explain why
Problem 3 (2 points)
Consider the economy which produces only cars and airplanes. The economy is
characterized by the following data
Price Quantity
Cars Airplanes Cars Airplanes
Rok 2010 7 6 4 5
Rok 2009 6 5 5 7
Rok 2006 5 6.5 6 6
Calculate nominal GDP in 2010 and 2009, real GDP in 2010 and 2009 ( use 2006 as
the base year), GDP deflator in 2010 and 2009, CPI in 2010 and 2009 and change in
real GDP between 2010 and 2009. Does the inflation accelerate or decelerate in 2010
compared to 2009?
Problem 4 (1 point + 0.5 BONUS)
The New York Times cost $0.15 in 1970 and $0.75 in 1999. The average wage in
manufacturing was $3.35 per hour in 1970 and $13.84 in 1999.
a. (0.5 point) By what percentage did the price of a newspaper rise? By what percentage did
the wage rise?
b. (0.5 point) In each year, how many minutes does a worker have to work to earn enough to
buy a newspaper?
c. (0.5 point) Did workers’ purchasing power in terms of newspapers rise or fall?
Problem 5 (1 point + 1 BONUS)
Suppose the Czech government borrows $20 billion more next year than this year.
a. (0.5 point) Use a supply-and-demand diagram to analyze this policy. Does the interest rate
rise or fall?
b. (0.5 point) What happens to investment? To private saving? To public saving? Compare the
size of the changes to the $20 billion of extra government borrowing.
c. (1 BONUS) Suppose households believe that greater government borrowing today implies
higher taxes to pay off the government debt in the future. What does this belief do to
private saving and the supply of loanable funds today? Does it increase or decrease the
effects you discussed in parts (a) and (b)?
Problem 6 (1 point)
Consider the following table representing the labor force participation rate of the U.S. citizens
sampled by gender and age in year 1970 and year 1990:
a. (0.5 point) Which age group experienced the largest decline among men? Which age group
experienced the largest increase among women?
b. (0.5 point) What factor may have played an important role in the decline in overall male
labor-force participation between 1970 and 1990? Why younger women experienced a bigger
increase in labor-force participation than older women?