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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
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