3:19 LTE *

Exam 1 205 spring 21 revised.docx

ECO 205

Spring 2021

Please show and explain your work

1. (20 points)

GDP Nominal GDP Deflator

Year (trillions 5) (base year 2005)

2020 $15

2002 $10 92

a. Calculate the growth rate of nominal GDP between 2002

and 2020. You may use the formula 100 x

over an N-year period and then a calculator on the web, but

make sure you show how you set the problem up. Or, you

may also use the simple formula that I use to approximate

the growth rate.

b. What was real GDP in 2012? What was real GDP in 2002?

c. What was the growth rate in real GDP between 2002 and

2020?

d. Why was there a difference between the growth rate in

nominal GDP and real GDP?

2. (15 points) List five limitations of using GDP as a measure

of economic well-being.

3. (15 points) List and explain the three limitations of using

the CPI to measure the cost of living

4. (10 points) Suppose spending on the market basket in the

base year (2005) is $7 trillion and spending in 2021 is $14

trillion. Calculate the inflation rate

5. (10 points) Henry Ford paid his workers $5 a day in 1914.

If the consumer price index was 10 in 1914 and 260 in

2021, how much is the Ford paycheck worth in today’s

dollars?

6. (20 points) The BLS announced that of the population of

100, 40 work full-time, 20 work half-time but would prefer

to work full-time, 10 would like to work but are so

discouraged that they have give up looking, 10 are full-time

students who don’t work and 10 are retired.

a. Calculate the labor force

b. Calculate the unemployment rate

c. How would you characterize the part-time workers

who want full-time work?

d. How would you characterize the discourage workers?

7. (10 points) Congress is currently considering raising the

minimum wage to $15. What effect is this likely to have on

the demand for labor? What effect is this likely to have on

the supply of labor? What overall effect will these effects

have on unemployment?

CO

Dashboard Calendar Notifications Inbox.