Reference no: EM131381413

1. Inflation in the orange and boomerang economy: Consider the economy from exercise 4. Calculate the inflation rate for the 2016-2017 period using the GDP deflator based on the Laspeyres, Paasche, and chain-weighted indexes of GDP.

2. How large is the economy of India? Indian GDP in 2010 was 78.9 trillion rupees, while U.S. GDP was $14.5 trillion. The exchange rate in 2010 was 45.7 rupees per dollar. India turns out to have lower prices than the United States (this is true more generally for poor countries): the price level in India (converted to dollars) divided by the price level in the United States was 0.368 in 2010.

(a) What is the ratio of Indian GDP to U.S. GDP if we don't take into account the differences in relative prices and simply use the exchange rate to make the conversion?

(b) What is the ratio of real GDP in India to real GDP in the United States in common prices?

(c) Why are these two numbers different?

7. How large is the economy of Japan? Japanese GDP in 2010 was 450 trillion yen (U.S. GDP, again, was $14.5 trillion). The exchange rate in 201(1 was 87.8 yen per dollar. Contrary to China and India, however, Japan had higher prices than the United States: the price level in Japan (converted to dollars) divided by the price level in the United States was 1.243 in 2010.

(a) What is the ratio of Japanese GDP to U.S. GDP if we don't take into account the differences in relative prices and simply use the exchange rate to make the conversion?

(b) What is the ratio of GDP in Japan to real GDP in the United States in common prices?

(c) Why are these two numbers different?

8. Earthquakes and GDP: Suppose the rural part of a country is hit by a major earthquake that destroys 10 percent of the country's housing stock. The govern¬ment and private sector respond with a major construction effort to help rebuild houses. Discuss how this episode is likely to affect (a) the economic well-being of the people in the country and (b) the economy's measured GDP.