【正文】 w goods。 and (3) unmeasured quality change.3. If the price of a Navy submarine rises, there is no effect on the consumer price index, since Navy submarines are not consumer goods. But the GDP price index is affected, since Navy submarines are included in GDP as a part of government purchases.4. Since the overall price level doubled, but the price of the candy bar rose sixfold, the real price (the price adjusted for inflation) of the candy bar tripled.5. The nominal interest rate is the rate of interest paid on a loan in dollar terms. The real interest rate is the rate of interest corrected for inflation. The real interest rate is the nominal interest rate minus the rate of inflation. Problems and Applications1. a. The price of tennis balls increases 0 percent。s market basket.2. The three problems in the consumer price index as a measure of the cost of living are: (1) substitution bias, which arises because people substitute toward goods that have bee relatively less expensive。s increased laborforce participation include increased selfesteem and prestige for women in the workforce, especially at managerial levels, but decreased quality time spent with children, whose parents have less time to spend with them. Such aspects would be quite difficult to measure.24章SOLUTIONS TO TEXT PROBLEMS:Quick Quizzes1. The consumer price index tries to measure the overall cost of the goods and services bought by a typical consumer. It is constructed by surveying consumers to fix a basket of goods and services that the typical consumer buys, finding the prices of the goods and services over time, puting the cost of the basket at different times, and then choosing a base year. To pute the index, we divide the cost of the market basket in the current year by the cost of the market basket in the base year and multiply by 100.2. Since Henry Ford paid his workers $5 a day in 1914 and the consumer price index was 10 in 1914 and 177 in 2001, then the Ford paycheck was worth $5 180。t rise as much as GDP, since the rise in women39。 100% = %.f. The growth rate of nominal GDP is higher than the growth rate of real GDP because of inflation.7. Economists ignore the rise in people39。 100% = %.b. The growth rate of the deflator is (118 113)/113 180。 100 = 0%.Percentage change in the GDP deflator in 2003 = [(200 100)/100] 180。 100 = 100%.Percentage change in real GDP in 2003 = [($400 $400)/$400] 180。 100 = 100%.Percentage change in nominal GDP in 2003 = [($800 $400)/$400] 180。 100 = 1002003: ($800/$400) 180。 100 qts. honey) = $400 Calculating the GDP deflator:2001: ($200/$200) 180。 100 qts. honey) = $4002003: ($1 per qt. of milk 180。 50 qts. honey) = $2002002: ($1 per qt. of milk 180。 100 qts. honey) = $800 Calculating real GDP (base year 2001):2001: ($1 per qt. of milk 180。 100 qts. honey) = $400 2003: ($2 per qt. of milk 180。 50 qts. honey) = $2002002: ($1 per qt. of milk 180。 and net exports, such as the sale of American wheat to Russia.6. Economists use real GDP rather than nominal GDP to gauge economic wellbeing because real GDP is not affected by changes in prices, so it reflects only changes in the amounts being produced. If nominal GDP rises, you do not know if that is because of increased production or higher prices.7. YearNominal GDPReal GDPGDP Deflator2001100 X $2 = $200100 X $2 = $200($200/$200) X 100 = 1002002200 X $3 = $600200 X $2 = $400($600/$400) X 100 = 150The percentage change in nominal GDP is (600200)/200 x 100 = 200%. The percentage change in real GDP is (400200)/200 x 100 = 100%. The percentage change in the deflator is (150100)/100 x 100 = 50%.8. It is desirable for a country to have a large GDP because people could enjoy more goods and services. But GDP is not the only important measure of wellbeing. For example, laws that restrict pollution cause GDP to be lower. If laws against pollution were eliminated, GDP would be higher but the pollution might make us worse off. Or, for example, an earthquake would raise GDP, as expenditures on cleanup, repair, and rebuilding increase. But an earthquake is an undesirable event that lowers our welfare.Problems and Applications: 1. a. Consumption increases because a refrigerator is a good purchased by a household.b. Investment increases because a house is an investment good.c. Consumption increases because a car is a good purchased by a household, but investment decreases because the car in Ford’s inventory had been counted as an investment good until it was sold.d. Consumption increases because pizza is a good purchased by a household.e. Government purchases increase because the government spent money to provide a good to the public.f. Consumption increases because the bottle is a good purchased by a household, but net exports decrease because the bottle was imported.g. Investment increases because new structures and equipment were built.2. With transfer payments, nothing is produced, so there is no contribution to GDP.3. Purchases of new housing are included in the investment portion of GDP because housing provides services for a long time. For the same reason, purchases of new cars could be thought of as investment, but by convention, they are not. The logic could apply to any durable good, such as household appliances.4. If GDP included goods that are resold, it would be counting output of that particular year, plus sales of goods produced in a previous year. It would doublecount goods that were sold more than once and would count goods in GDP for several years if they were produced in one year and resold in another.5. a. Calculating nominal GDP:2001: ($1 per qt. of milk 180。 investment, such as the purchase of a puter by a business。 and (4) net exports. The largest ponent is consumption, which accounts for more than twothirds of total expenditure.