YOU MUST SHOW ALL WORK TO RECEIVE CREDIT.
WHEN NECESSARY ROUND NUMBER TO ONE DECIMAL PLACE.
PLEASE INCLUDE YOUR WORK AN SEPARATE SHEET(S) OF PAPER.  IF YOU HAVE MULTIPLE SHEETS.   PLEASE STAPLE THEM TOGETHER OR I WILL TAKE POINTS OFF.
IF YOU DO NOT FOLLOW DIRECTIONS I WILL TAKE POINTS OFF.

1.  Imagine that a country produces only one good:  pizza.  Suppose that in 1986 the total output in a single good economy was 7000 pizzas.  Also suppose that in 1986 each pizza was priced at $10.  Further assume that in 1993 the price per pizza was $16 (gourmet pizza) and 22,000 were purchased. 
     A.  What was nominal GDP in 1986 and 1993? 
     B.  Determine the GDP price index for 1986 and 1993 assuming that 1993 is the base year.
     C.  By what percentage did the price level rise between the years?
     D.  What was real GDP in 1986 in 1993 dollars?  Use both methods in table 7-6 to find the answer.

2.  The Metropolis department of Economics and Labor statistics has determined that the average citizen buys an annual bundle of goods consisting of:
 

item	Number of units bought	1990 price	1998 price
Daily Planet newspapers	365	$1	$1
Coffee	730	$3	$4
Suits	10	$350	$400
Batman Merchandise	5	$20	$10
Superman Merchandise	5	$20	$22
Food	1200	$10	$12
Rent	1	$12,000	$14,000

The average citizen of Metropolis has an annual income of $35,000 dollars in 1990 and $40,000 in 1998.
     A.  What is the Metropolis's CPI for 1990 and 1998 assuming that 1990 is the base year?
     B.  Was there inflation in Metropolis between 1990 and 1998 and if so, how much? (You must show the work with the full equation)
     C.  Did the average income rise enough to keep pace with the price changes?  Explain why or why not.  Be very clear.
 
 

3.  The Department of Labor of Keystone City collected the following data:
 

Citizens under 16 yrs old	120 million
Citizen between 17 and 21 yrs old	40 million
Citizen between 22 and 30 yrs old	95 million
Citizen between 31 and 50 yrs old	195 million
Citizen over 50 yrs old	250 million
Homemakers	65 million
Unemployed Citizens	40 million
Self employed Citizens	100 million
Institutionalized or incarcerated citizens	75 million
Retired Citizens	35 million
Members of the police force	2 million
GDP	800 million

Assume that you must be at least 16 years old to legally work.

A.  What is the size of the labor force?
B.  What is the unemployment rate?
C.  If the natural rate of unemployment in the economy was 5.5%, what would the GDP gap be in percentage terms?

4.  Read the article listed in the article section of the class webpage (www.udel.edu/Economics/massey) titled "GDP Rule Changes."  Write a one paragraph summary of the article.  Your grade will be based on the completeness of you summary.

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