# 1. Explain why experimentation is difficult in macroeconomics. And, suppose that you had speed powers to…

1. Explain why experimentation is difficult in macroeconomics. And, suppose that you had speed powers to travel back in time to the Great Depression. What experiment would you like to run on the U.S. economy and why? 2. Assume an economy where there are two producers: a wheat and bread producer. In a given year, the wheat producer grows 30 million bushels of wheat of which 25 million bushels are sold to the bread producer at \$3 per bushel, and 5 million are stored by the wheat producer to use as seed for next year’s crop. The bread producer makes and sells 100 million loaves of bread to the consumers for \$3.50 per loaf. Determine nominal GDP in this economy using the: (a) product approach, and (b) expenditure approach. 3. Assume an economy where there are two producers: a wood producer and a chair producer. In a given year, the chair producer makes 25 chairs, of which 5 are sold to the wood producer maker at \$100 each, 10 chairs are sold to Tibet and 5 are stored. The wood producer sells 1000 pounds of wood at \$4 each, 100 of which are sold to the chair producer. Compute GDP in this economy using the: (a) product approach, and (b) expenditure approach. 4. In year 1 and year 2, there are two products produced in a given economy, computers and bread. Suppose that there are no intermediate goods. In year one, 20 computers are produced and sold at \$1,000 each, and in year two, 25 computers are sold at \$1,500 each. In year one, 10,000 loaves of bread are sold for \$1.00 each, and in year two, 12,000 loaves of bread are sold for \$1.10 each. (a) Calculate nominal GDP in each year. (b) Using the deflator method, calculate real GDP in each year, and the percentage increase in real GDP from year 1 to year 2 using year 1 as the base year. (c) Calculate the implicit GDP price deflator and the percentage inflation rate from year 1 to year 2 using year 1 as the base year. (d) Using year one as the base year, calculate the CPI in years one and two, and calculate the CPI rate of inflation. Explain any differences in your results between parts (c) and (d).
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