Problem Set for Midterm 1, Intro to Macroeconomics
Instructor: Atiq Rahman
(Q) 1)The table below represents some statistical information about the population of a nation.
Total Population 3.2 M
Civilian non institutional population 2.7 M
People not in labour force 0.6 M
Civilian labour force 2.1 M
Employed 1.8 M
Unemployed 0.3 M
Number of frictionally unemployed persons 0.15 M
Number of structurally unemployed person 0.10 M
People under 16 + People in the armed 0.5 M
forces+
People institutionalized
Suppose you work for the central bank of a country. As an economist, using the given
information above, you are asked to compute the following:
(a) the unemployment rate: (U)
(b) Employment rate (E)
(c) Labour force participation rate ( LFPR)
(d) Frictional unemployment rate
(e) Structural unemployment rate
(f) Natural unemployment rate
(g) Cyclical unemployment rate
Ans: 1)
(a) U = 0.3 M / 2.1 M = 0.143
(b) Employment rate (E)
E = 1.8 M / 2.7 M = 0.667
(c) Labour force participation rate ( LFPR)
LFPR = 2.1 M/ 2.7 M = 0.778
(d) Frictional unemployment rate
Frictional unemployment rate = number of frictionally unemployed person / civilian labour force
0.15 / 2.1 M = 0.0714 (also can be written as 7.14%)
(e) Structural unemployment rate
Structural unemployment rate = Number of structurally unemployed persons / civilian labour
force
Structural unemployment = 0.10 M / 2.1 M = 0.0476 (also can be written as 4.76%)
(f) Natural unemployment rate
Natural unemployment rate = Structural unemployment rate + Frictional unemployment
rate
= 0.0714 + 0.0476 = 0.119
(g) Cyclical unemployment rate
Cyclical unemployment rate = Unemployment rate – Natural unemployment rate
= 0.143 - 0.119 = 0.024
(Q)(2) Assume a small economy only produces 3 goods: Shirts, Sweaters and Sneakers.
Year Price of Quantity of Price of Quantity of Price of Quantity of
shirt shirt sweaters sweaters sneakers Sneakers
2019 $5 20 $10 20 $11 20
2020 $7 22 $12 17 $15 20
2021 $4 18 $14 22 $19 18
(a) Calculate the nominal GDP for each year
(b) Calculate the real GDP for each year considering 2019 as the base year
(c) Calculate the GDP deflator for each year
Ans: 2
(a) Nominal GDP for the following years:
2019: (5*20)+(10*20)+ (11*20) = 520
2020: (7*22) + ( 12* 17) + ( 15*20) = 658
2021: ( 4*18) + ( 14 *22) + ( 19* 18) = 722
(b) Real GDP for the following years:
2019: (5*20)+(10*20)+ (11*20) = 520
2020: ( 5 *22) + ( 10* 17) + (11 * 20) = 500
2021: ( 5* 18) + (10* 22) + ( 11* 18) = 508
(c) GDP deflator for the following years:
2019: (520/ 520 ) * 100 = 100
2020: ( 658/ 500) * 100 = 131.6
2021: ( 722/ 508) * 100 = 142.13
(Q) 3) Melissa works for the government of a country ABC as a research analyst. Her manager
gives her some sets of data below and tells her to find GDP of the country using the income
approach. Melissa does her own research and finds out that the National income of the country is
20 B.
(a) Given the data sets below, find the GDP of the country Melissa is working in.
Indirect Business Taxes 1B
Statistical Discrepancy 0.5 B
Income Earned by the rest of the world 15 B
Capital Consumption Allowance (CCA) 4B
Income Earned from the rest of the world 10 B
(b) Find out the Net Domestic product (NDP) of the country ABC. What is the importance of
finding NDP?
Ans: 3
(a) GDP = National Income – Income earned from the rest of the world + Income earned by the
rest of the world + Indirect business taxes + CCA – Statistical Discrepancy
Therefore, GDP = 20 B – 10B + 15B + 1B + 4B + 0.5B = 30.5 B
(b) Net Domestic Product (NDP) = GDP – CCA = 30.5 B – 4 B = 26.5 B
We find NDP to measure the total value of new goods available in a given year after worn out
capital goods have been replaced.
(Q) (4) (a)For the simplicity of calculation, assume a nation which produces only 3 goods: 25
stationaries, 40 trousers and 45 cardigans. The prices of each of the items for the current year
and base year are given in the table below.
Using the information given please find out:
(a) Consumer Price Index.
Market Basket Current year prices Base-Year Prices
(per item)
25 stationaries $5 $4
40 trousers $25 $22
45 cardigans $30 $26
(b) Given also that an average person’s nominal income in this country is $40,000. Calculate the
person’s Real Income.
(a) CPI = (25 * 5 ) + ( 40 * 25) + ( 45 * 30) X 100
(25 * 4) + ( 40 * 22) + ( 45 * 26)
= 115.12
(b)
Real Income = (40,000/ 115.12) * 100 = $34, 746.4
(Q) 5) Using the dataset below: compute the following:
(a) Sam earned an annual salary of $20,000 in 1978. What is his salary equivalent in 2010
dollars?
(b) An apartment cost $65,000 in 1980. What is the price equivalent to in 2016 dollars?
Ans: 5
(a) Salary Equivalent in 2010 dollars = Salary in 1978 X ( CPI in 2010/ CPI in 1978)
= 20,000 X ( 218.056/ 65.2)
= $ 66,888.3
(b)
Price of apartment equivalent in 2016 dollars: $65,000 X ( 241.353/ 82.4)
= $ 190,387.68
(Q) (6) Given the following statistical dataset of a nation. M represents million
People Employed 2M
People Unemployed 0.20 M
People Not in Labour force 0.40 M
Using the information in the table, calculate the number of people in
(a) Civilian labour force
(b) Civilian Noninstitutional population
Ans: 6
(a) Civilian labour force = Employed people + Unemployed people = 2M + 0.2M = 2.2 M
(b) Civilian Noninstitutional Population = Civilian labour force + People Not in labour force
= 2.2 M + 0.4 M = 2.6 M
Also note if you are told to find out the total population of the country, just add the civilian
Noninstitutional population that you just calculated to the number of People under 16 + People in
the armed forces +People institutionalized to compute the total population of the country if
mentioned in the question.