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14.

Use the information below for Questions 14 and 15

This information comes from the self sufficiency article that we talked about in the lectures. The numbers represent the cost of a given basket of goods and services.

We declare Allegheny county as the ‘base’ county.

  • Clarion, $20,500
  • Sullivan, $18,100
  • Westmoreland, $24,000
  • Allegheny, $28,700

What is the price index in Clarion county? In Sullivan county? In Westmoreland county?

 

 


15.

If you made $50,000 per year in Westmoreland county, how much would you need to make in Clarion county to have the same purchasing power as you have with $50,000 in Westmoreland county?

 

 


16.

Use the information below for Questions 16 and 17.

A make believe economy produces the following 3 goods.

Good 2011 Quantity 2011 Price 2012 Quantity 2012 Price
Apples 50 $1.00 55 $1.50
Oranges 10 $1.50 10 $1.50
Pears 40 $1.00 20 $1.25

Assuming 2011 is the base year, calculate real GDP and the GDP price deflator in 2012.

 

 


17.

Assuming 2011 is the base year, calculate the percent change in real GDP and the percent change in the GDP deflator between 2011 and 2012.

 


18.

– 20 points total


Suppose that in Japan can produce 4 cars in 10 hours and 20 HD TVs in 12 hours. The US can produce 4 cars in 8 hours and 20 TVs in 6 hours. Explain which country has a comparative advantage in producing cars and which country has a comparative advantage in producing TVs, In your answer, be sure to be very specific as to how you identified the comparative advantage in each country and define how one goes about identifying comparative advantage.

 

19.
Assuming that this is what is produced in each country (4 cars and 20 HD TVs), nothing more and nothing less, explain how both countries can benefit through trade. Again, be very specific in terms of identifying the gains from trade and how each country is better as compared to not trading at all.
 


20.
Suppose the one year nominal interest rate is 1 percent and that the expected inflation is equal to 2 percent. The price index over this one year period went from 230 to 229. Compare the ex-ante real rate of interest to the ex-post real rate of interest. Which real rate of interest would you more likely be willing to spend today and which real rate of interest would you more likely be willing to save and why?
 

 

 

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