MGEB06 – FALL 2022

Macroeconomic Theory and

Policy Assignment 1
Due: On (or before) Monday, October 24th 11pm
(Note: Assignments submitted after 11pm on October 24th WILL NOT BE accepted under ANY
circumstance.)

The table below should be the cover page of each question submitted for your assignment.
Group members: Student number
1 Ayman Zaman 1007532948

2 Jason Widjaja 1007666429

3 Pei Hsin Yao (Livia Yao) 1008455547

4 Mahek Shaikh 1007964758

5 Jingwen Deng (Zoey Deng) 1008596020

Instructions:
 You can submit an individual or group assignment. If you submit a group assignment, there
must be no more than FIVE students in your group (coming from any one of the sections of
MGEB06 this term) and you must submit ONE copy.

A PENALTY OF 10% OF THE TOTAL MARKS will be imposed if you FAIL TO DO THE
FOLLOWING: Submit the filled-in table as your cover page (for EACH answer uploaded)

 Label your graph(s); otherwise, marks will be subtracted.

 No credit will be given if you do not show your work (i.e., don’t simply say the answer is 3
write down enough of the steps you used to arrive at this answer).
 Your answer should be structured in a way such that those that know little about economics
will have no difficulty understanding your argument/answer.
 DO NOT USE any notations that are not used in lectures. If you use your own notations
and/or abbreviations that are not being used in lectures, you will receive a grade of zero for
that question.

MGEB06 Assignment 1 (FALL 2022) 1

Question 1 (20 points) – Chapter 2
The following table provides the economic data for an economy.
Year 2019 2020 2021
Price Quantity Price Quantity Price Quantity
Good 1 7 9500 8.5 11000 8.75 10000
Good 2 26 4000 30 4500 28 4200
Good 3 5 7500 6 6500 7 6500
Good 4 7.5 1600 6 1800 7 1700
Good 5 8 3000 10 3300 12 2800
Good 6 4.5 3000 5 3600 5 3600

Demographic Data:
2019 2020 2021
Number of employed 4440 4560 4560
Number of unemployed 180 230 180
Number of not in the labor force 1400 1330 1420
Adult population 6020 6120 6160
Total population 6220 6380 6410

Here is some additional information about this economy that holds true for all 3 years unless otherwise
stated:
 Unless otherwise stated, the goods are produced within the economy.
 Half good 1 goes to households, while the remaining of the goods are equally split between firms
and government.
 Good 2 is a pure consumption goods ad 35% are purchased from abroad.
 Firms purchase one-fifth of good 3 while the government consumes 30% of the good. The
remaining is bought by households. Of the good 3 bought by households, one-fifth goes to foreign
households while the rest goes to domestic households.
 Both households and small businesses purchase good 4: 70% goes to households while 30% goes to
small businesses. In addition, all the good 4 consumed by small businesses is produced outside the
country.
 Good 5 is purchased by firms and governments only. Domestic firms and government buy 80% of
the good and they split them equally; and foreign firm/businesses buy the rest.
 Good 6 is bought only by households.
 The government has chosen 2019 as the base year.

a) Based on the information given, complete the table provided. (10 points)
 You must submit the table as your answer to Question 1 with your assignment for grading.
 Also, on separate page(s), show your work! You are required to do both; otherwise, you will
receive a grade of zero for this part of the question.

b) From 2019 to 2020, the percentage change in real GDP per capita is different from the percentage
change in real GDP per worker. Why? Explain. (5 points)

c) Suppose that when good 6 was sold in both 2019 & 2020 it was 300 milliliters, but when it was
sold in 2021 the size changed to 280 milliliters. Discuss the implications of this change on our
calculations and explain what steps the statistical agency responsible for collecting and interpreting
this data might

MGEB06 Assignment 1 (FALL 2022) 2

 take to deal with this when estimating the price level and its related or estimated rate of inflation.
For example, explain whether it would be fair to report that data as is without any modifications
and/or explanations AND what modifications and/or explanations might make sense so that
consumers of this data are properly informed. (5 points)

Table for Question 1 part (a)

Submit this page for grading; otherwise, you will receive a grade of ZERO for
Question 1 part a.

2019 2020 2021

Consumption $174,150.00 $222,910.00 $205,880.00

Investment $37,325.00 $47,615.00 $47,985.00

Government $37,475.00 $48,275.00 $48,965.00

spending
Exports $8,550.00 $10,500.00 $11,270.00

Imports $40,000.00 $50,490.00 $44,730.00

Nominal GDP $217,500.00 $278,810.00 $269,370.00

Real GDP $217,500.00 $237,600.00 $221,005.00

GDP deflator 100 117.34 121.88

CPI 100 114.9 113.35

Real GDP per capita $34.97 $37.24 $34.48

Real GDP per $48.99 $52.11 $48.47

worker

MGEB06 Assignment 1 (FALL 2022) 3

B. Percentage change in real GDP: 9.2%
Percentage change in real GDP per Capita: 6.5%
Percentage change in real GDP per worker: 6.4%
# Change in population: 160
# Change in employment: 120
Percentage change in population: 2.6%
Percentage change in employment: 2.7%

The percentage change in real GDP per capita is higher than the percentage change in real GDP per
worker because the increasing number of populations is higher than the increasing amount of
employed people.

These data are interesting because even though the percentage change in population is smaller
(2.6%) than the percentage change in employment (2.7%), we cannot quickly infer that the number
of changes in employment is higher due to different number of calculations in division. The data
quickly show that # change in population is bigger (160 people) compared to # change in
employment (120 people) This tells us that we cannot quickly assume the implications are true until
we verify it further.

Moreover, from these data we can infer that the country was doing well between 2019 - 2020. It
clearly shows that the increasing number of populations grows linearly with the increasing number
in real GDP and GDP per capita.

C. The result of decreasing millimeter size can cause household to act depending on the different types
of the product:

 Primary/Necessity Good: they will tend to find its substitute because the households need to
use the product, no matter what. This can happen if the good fell into a monopolistic
competition with little differentiation over one another. If they cannot find any better
alternatives, they household may choose to keep buying it, as showed in the data that the
quantity and price for good 6 for both 2020 and 2021 do not change.

 Non-primary/necessity Good: If it is a non-primary good, the household may forfeit to buy

it because they demand higher quality for high price that they are willing to buy, the non-
primary goods (such as sports car, etc.) where the quality is one of the factors that
differentiated the value-added product. Moreover, this decision can also cause the domino
effect to its complementary product (if any).

However, as shown at the table, we do not think that the product is into the non-necessity category
because the price stated is $5 (but we still decided to mention these two types because we cannot
assume further the specific type of the product). This implies that our calculation can increase or
decrease depending on the situation:

 Customer can find substitute: In this situation, the customer will pick other alternatives
with the same or cheaper option (say good 7), then causing more promotion-for-incentive
coming from good 6 or even causing price to drop in the long run. Moreover, the estimated
rate of inflation is low (nearly zero) for this product but increasing for its substitute, until
further adjustment to the quality of the product.

MGEB06 Assignment 1 (FALL 2022) 4

  Customer cannot find substitute: In this situation, customer will decide to keep buying the
product, at no matter cost. This will cause the price level to steady and still growing slowly in
the long run, which causing the rate of inflation will continue to grow but more slowly.

The statistical agency must disclose the information. If they choose to release the unmodified data, it
would be their risk for customers to find out about the product details in the long run, which will
cause the company more in the future.

The data should be reported and stated fairly in any situation. One addition could be added with the
educational (and maybe economical or any) reason behind the decrease in production quality for
customers after doing a survey with the company. Reporting fairly with the hope that there will be
manufacturing regulation given by the government after the numbers published.

MGEB06 Assignment 1 (FALL 2022) 5

 Consumption (Nominal)

2019
Good 1 =(9500/2)*7 $ 33,250.00
Good 2 =(4000)*26 $ 104,000.00
Good 3 =((7500-(7500*0.3) -(7500/5))*4/5)*5 $ 15,000.00
Good 4 =(1600*0.7)*7.5 $ 8,400.00
Good 5 - $ -
Good 6 =3000*4.5 $ 13,500.00
Total Consumption $ 174,150.00

2020
Good 1 =(11000/2) * 8.5 $ 46,750.00
Good 2 =(4500)*30 $ 135,000.00
Good 3 =((6500-(6500*0.3) -(6500/5))*4/5)*6 $ 15,600.00
Good 4 =(1800*0.7)*6 $ 7,560.00
Good 5 - $ -
Good 6 =3600*5 $ 18,000.00
Consumption (Real)
Total Consumption $ 222,910.00
2019
2021
Good 1 =(9500/2)*7 $ 33,250.00
Good 1 =(10000/2) * 8.75 $ 43,750.00
Good 2 =(4000)*26 $ 104,000.00
Good 2 =(4200)*28
=((7500-(7500*0.3) - $ 117,600.00
Good33
Good =((6500-(6500*0.3)
(7500/5))*4/5)*5 -(6500/5))*4/5)*7 $$ 15,000.00
18,200.00
Good44
Good =(1700*0.7)*7
=(1600*0.7)*7.5 $ 8,330.00
$ 8,400.00
Good55
Good -- $$ --
Good66
Good =3600*5
=3000*4.5 $$ 13,500.00
18,000.00
Total Consumption $ 174,150.00
Total Consumption $ 205,880.00
2020
Total13 years Consumption
Good =(11000/2) * 7 $$ 38,500.00
602,940.00
Good 2 =(4500)*26 $ 117,000.00
=((6500-(6500*0.3) -
Good 3 (6500/5))*4/5)*5 $ 13,000.00
Good 4 =(1800*0.7)*7.5 $ 9,450.00
Good 5 - $ -
Good 6 =3600*4.5 $ 16,200.00
Total Consumption $ 194,150.00

2021
Good 1 =(10000/2) * 7 $ 35,000.00
Good 2 =(4200)*26 $ 109,200.00
=((6500-(6500*0.3) -
Good 3 (6500/5))*4/5)*5 $ 13,000.00
Good 4 =(1700*0.7)*7.5 $ 8,925.00
Good 5 - $ -
Good 6 =3600*4.5 $ 16,200.00
MGEB06 Assignment 1 (FALL 2022) 6
Total Consumption $ 182,325.00

Total 3 years Consumption $ 550,625.00

Consumption (Cost of the Basket)

2019
Good 1 =(9500/2)*7 $ 33,250.00
Good 2 =(4000)*26 $ 104,000.00
Good 3 =((7500-(7500*0.3) -(7500/5))*4/5)*5 $ 15,000.00
Good 4 =(1600*0.7)*7.5 $ 8,400.00
Good 5 - $ -
Good 6 =3000*4.5 $ 13,500.00
Total Consumption $ 174,150.00

2020
Good 1 =(9500/2) * 8.5 $ 40,375.00
Good 2 =(4000)*30 $ 120,000.00
Good 3 =((7500-(7500*0.3) -(7500/5))*4/5)*6 $ 18,000.00
Good 4 =(1600*0.7)*6 $ 6,720.00
Good 5 - $ -
Good 6 =3000*5 $ 15,000.00
Total Consumption $ 200,095.00

2021
Good 1 =(9500/2) * 8.75 $ 41,562.50
Good 2 =(4000)*28 $ 112,000.00
Good 3 =((7500-(7500*0.3) -(7500/5))*4/5)*7 $ 21,000.00
Good 4 =(1600*0.7)*7 $ 7,840.00
Good 5 - $ -
Good 6 =3000*5 $ 15,000.00

Total Consumption $ 197,402.50

Total 3 years Consumption $ 571,647.50

MGEB06 Assignment 1 (FALL 2022) 7

Investment (Nominal)

2019
Good 1 =(9500/2/2)*7 $ 16,625.00
Good 2 - -
Good 3 =(7500/5)*5 $ 7,500.00
Good 4 =(1600*0.3)*7.5 $ 3,600.00
Good 5 =(3000*0.8/2)*8 $ 9,600.00
Good 6 - -
Total Investment $ 37,325.00

2020
Good 1 =(11000/2/2)*8.5 $ 23,375.00
Good 2 - -
Good 3 =(6500/5)*6 $ 7,800.00
Good 4 =(1800*0.3)*6 $ 3,240.00
Good 5 =(3300*0.8/2)*10 $ 13,200.00
Good 6 - -
Total Investment $ 47,615.00

2021
=(10000/2/2)*8.7
Good 1 5 $ 21,875.00
Good 2 - -
Good 3 =(6500/5)*7 $ 9,100.00
Good 4 =(1700*0.3)*7 $ 3,570.00
Good 5 =(2800*0.8/2)*12 $ 13,440.00
Good 6 - -

Total Investment $ 47,985.00

Total 3 years Investment $ 132,925.00

MGEB06 Assignment 1 (FALL 2022) 8

Investment (Real)

2019
Good 1 =(9500/2/2)*7 $ 16,625.00
Good 2 - -
Good 3 =(7500/5)*5 $ 7,500.00
=(1600*0.3)*7.
Good 4 5 $ 3,600.00
=(3000*0.8/2)*
Good 5 8 $ 9,600.00
Good 6 - -
Total Investment $ 37,325.00

2020
Good 1 =(11000/2/2)*7 $ 19,250.00
Good 2 - -
Good 3 =(6500/5)*5 $ 6,500.00
=(1800*0.3)*7.
Good 4 5 $ 4,050.00
=(3300*0.8/2)*
Good 5 8 $ 10,560.00
Good 6 - -
Total Investment $ 40,360.00

2021
Good 1 =(10000/2/2)*7 $ 17,500.00
Good 2 - -
Good 3 =(6500/5)*5 $ 6,500.00
=(1700*0.3)*7.
Good 4 5 $ 3,825.00
=(2800*0.8/2)*
Good 5 8 $ 8,960.00
Good 6 - -

Total Investment $ 36,785.00

Total 3 years Investment $ 114,470.00

MGEB06 Assignment 1 (FALL 2022) 9

Government Spending (Nominal)

2019
Good 1 =(9500/2/2)*7 $ 16,625.00
Good 2 - -
Good 3 =(7500*0.3)*5 $ 11,250.00
Good 4 - -
Good 5 =(3000*0.8/2)*8 $ 9,600.00
Good 6 - -
Total Government Spending $ 37,475.00

2020
Good 1 =(11000/2/2)*8.5 $ 23,375.00
Good 2 - -
Good 3 =(6500*0.3)*6 $ 11,700.00
Good 4 - -
Good 5 =(3300*0.8/2)*10 $ 13,200.00
Good 6 - -
Total Government Spending $ 48,275.00

2021
Good 1 =(10000/2/2)*8.75 $ 21,875.00
Good 2 - -
Good 3 =(6500*0.3)*7 $ 13,650.00
Good 4 - -
Good 5 =(2800*0.8/2)*12 $ 13,440.00
Good 6 - -

Total Government Spending $ 48,965.00

Total 3 years Government Spending $ 134,715.00

MGEB06 Assignment 1 (FALL 2022) 1

Government Spending (Real)

2019
Good 1 =(9500/2/2)*7 $ 16,625.00
Good 2 - -
Good 3 =(7500*0.3)*5 $ 11,250.00
Good 4 - -
Good 5 =(3000*0.8/2)*8 $ 9,600.00
Good 6 - -
Total Government Spending $ 37,475.00

2020
Good 1 =(11000/2/2)*7 $ 19,250.00
Good 2 - -
Good 3 =(6500*0.3)*5 $ 9,750.00
Good 4 - -
Good 5 =(3300*0.8/2)*8 $ 10,560.00
Good 6 - -
Total Government Spending $ 39,560.00

2021
Good 1 =(10000/2/2)*7 $ 17,500.00
Good 2 - -
Good 3 =(6500*0.3)*5 $ 9,750.00
Good 4 - -
Good 5 =(2800*0.8/2)*8 $ 8,960.00
Good 6 - -

Total Government Spending $ 36,210.00

Total 3 years Government Spending $ 113,245.00

MGEB06 Assignment 1 (FALL 2022) 1

Exports (Nominal)

2019
Good 1 - -
Good 2 - -
Good 3 =((7500-(7500*0.3) -(7500/5))*1/5)*5 $ 3,750.00
Good 4 - -
Good 5 =(3000*0.2)*8 $ 4,800.00
Good 6 - -
Total Exports $ 8,550.00

2020
Good 1 - -
Good 2 - -
Good 3 =((6500-(6500*0.3) -(6500/5))*1/5)*6 $ 3,900.00
Good 4 - -
Good 5 =(3300*0.2)*10 $ 6,600.00
Good 6 - -
Total Exports $ 10,500.00

2021
Good 1 - -
Good 2 - -
Good 3 =((6500-(6500*0.3) -(6500/5))*1/5)*7 $ 4,550.00
Good 4 - -
Good 5 =(2800*0.2)*12 $ 6,720.00
Good 6 - -

Total Exports $ 11,270.00

Total 3 years Exports $ 30,320.00

MGEB06 Assignment 1 (FALL 2022) 1

Exports (Real)

2019
Good 1 - -
Good 2 - -
Good 3 =((7500-(7500*0.3) -(7500/5))*1/5)*5 $ 3,750.00
Good 4 - -
Good 5 =(3000*0.2)*8 $ 4,800.00
Good 6 - -
Total Exports $ 8,550.00

2020
Good 1 - -
Good 2 - -
Good 3 =((6500-(6500*0.3) -(6500/5))*1/5)*5 $ 3,250.00
Good 4 - -
Good 5 =(3300*0.2)*8 $ 5,280.00
Good 6 - -
Total Exports $ 8,530.00

2021
Good 1 - -
Good 2 - -
Good 3 =((6500-(6500*0.3) -(6500/5))*1/5)*5 $ 3,250.00
Good 4 - -
Good 5 =(2800*0.2)*8 $ 4,480.00
Good 6 - -

Total Exports $ 7,730.00

Total 3 years Exports $ 24,810.00

MGEB06 Assignment 1 (FALL 2022) 1

Imports (Nominal)

2019
Good 1 - -
Good 2 =(4000*0.35)*26 $ 36,400.00
Good 3 - -
Good 4 =(1600*0.3)*7.5 $ 3,600.00
Good 5 - -
Good 6 - -
Total Imports $ 40,000.00

2020
Good 1 - -
Good 2 =(4500*0.35)*30 $ 47,250.00
Good 3 - -
Good 4 =(1800*0.3)*6 $ 3,240.00
Good 5 - -
Good 6 - -
Total Imports $ 50,490.00

2021
Good 1 - -
Good 2 =(4200*0.35)*28 $ 41,160.00
Good 3 - -
Good 4 =(1700*0.3)*7 $ 3,570.00
Good 5 - -
Good 6 - -

Total Imports $ 44,730.00

Total 3 years Imports $ 135,220.00

MGEB06 Assignment 1 (FALL 2022) 1

Imports (Real)

2019
Good 1 - -
Good 2 =(4000*0.35)*26 $ 36,400.00
Good 3 - -
Good 4 =(1600*0.3)*7.5 $ 3,600.00
Good 5 - -
Good 6 - -
Total Imports $ 40,000.00

2020
Good 1 - -
Good 2 =(4500*0.35)*26 $ 40,950.00
Good 3 - -
Good 4 =(1800*0.3)*7.5 $ 4,050.00
Good 5 - -
Good 6 - -
Total Imports $ 45,000.00

2021
Good 1 - -
Good 2 =(4200*0.35)*26 $ 38,220.00
Good 3 - -
Good 4 =(1700*0.3)*7.5 $ 3,825.00
Good 5 - -
Good 6 - -

Total Imports $ 42,045.00

Total 3 years Imports $ 127,045.00

MGEB06 Assignment 1 (FALL 2022) 1

Nominal GDP

2019
Consumption $ 174,150.00
Investment $ 37,325.00
Government Spending $ 37,475.00
Exports $ 8,550.00
Imports -$ 40,000.00
Total Nominal GDP $ 217,500.00

2020
Consumption $ 222,910.00
Investment $ 47,615.00
Government Spending $ 48,275.00
Exports $ 10,500.00
Imports -$ 50,490.00
Total Nominal GDP $ 278,810.00

2021
Consumption $ 205,880.00
Investment $ 47,985.00
Government Spending $ 48,965.00
Exports $ 11,270.00
Imports -$ 44,730.00

Total Nominal GDP $ 269,370.00

Total 3 years Nominal GDP $ 765,680.00

MGEB06 Assignment 1 (FALL 2022) 1

Real
GDP Percentage Change

2019
Consumption $ 174,150.00
Investment $ 37,325.00
Government Spending $ 37,475.00
Exports $ 8,550.00
Imports -$ 40,000.00
Total Real GDP $ 217,500.00 9.2%

2020
Consumption $ 194,150.00
Investment $ 40,360.00
Government Spending $ 39,560.00
Exports $ 8,530.00
Imports -$ 45,000.00
Total Real GDP $ 237,600.00 -7.0%

2021
Consumption $ 182,325.00
Investment $ 36,785.00
Government Spending $ 36,210.00
Exports $ 7,730.00
Imports -$ 42,045.00

Total Real GDP $ 221,005.00 -

Total 3 years Real GDP $ 676,105.00

GDP Deflator
2019 ='Nominal GDP'!D8/'Real GDP'!D8*100 100
2020 ='Nominal GDP'!D15/'Real GDP'!D15*100 117.3443
2021 ='Nominal GDP'!D22/'Real GDP'!D22*100 121.8841

Real GDP Per Capita Precentage Change

2019 ='Real GDP'!D8/6220 $ 34.97 7%
2020 ='Real GDP'!D15/6380 $ 37.24 -7%
2021 ='Real GDP'!D22/6410 $ 34.48 -

Real GDP Per Worker Precentage Change

2019 ='Real GDP'!D8/4440 $ 48.99 6%
2020 ='Real GDP'!D15/4560 $ 52.11 -7%
2021 ='Real GDP'!D22/4560 $ 48.47 -

MGEB06 Assignment 1 (FALL 2022) 1

Cost of Basket

2019
Consumption $ 174,150.00
Total Cost of Basket $ 174,150.00

2020
Consumption $ 200,095.00
Total Cost of Basket $ 200,095.00

2021
Consumption $ 197,402.50

Total Cost of Basket $ 197,402.50

Total 3 years Cost of Basket $ 571,647.50

CPI
Cost of Basket Given Year / Cost of Basket Base Year x 100
2019 =D4/D4*100 100
2020 =D7/D4*100 114.9
113.3
2021 =D10/D4*100 5

MGEB06 Assignment 1 (FALL 2022) 1