Graduate (S) Business Administration 509 THE ECONOMIC ENVIRONMENT OF BUSINESS
	Spring 2018

Macroeconomic Measurement

 When calculations are required, you must show all work unless the answer is obvious. The homework is due on Sunday, April 29. 

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1.  Consider an industry that has nine firms with the following market shares:

a.  Calculate the Herfindahl-Hirschman Index for this industry.

b. The second largest firm decides to acquire one of the smallest firms in order to better compete with the largest firm. How will the Department of Justice and the Federal Trade Commission react to the proposed deal?

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2. Suppose an economy has the following national income data (in US$ billions):

Gross private domestic investment	170
Depreciation expenditures	110
Compensation of employees	580
Personal taxes	70
Net interest	60
Imports	120
Exports	100
Government consumption expenditures and gross investment	200
Income earned, not received	90
Proprietor's income	80
Income received, not earned	130
Rental income	40
Personal consumption expenditures	700

Based on these data, calculate the gross domestic product, national income, corporate profits, personal income, disposable income, and personal saving for this economy.

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3.  Suppose a country produces the following products:

Item	2010 Quantity	2010 Price	2018 Quantity	2018 Price
Haircuts	380,000	$10	540,000	$12
Gasoline	3,000,000	$3.00	3,600,000	$3.50
Pizzas	400,000	$13	600,000	$16

a.  Calculate the nominal GDP for both 2010 and 2018.

b.  Calculate the real GDP for 2018, using 2010 as the base year.

c.  Calculate the GDP deflator for 2018, with 2010 as the base year.  What is the amount of inflation between 2010 and 2018, according to the GDP deflator?

d.  Suppose that, in 2010, the average consumer in this economy consumed 8 haircuts, 720 gallons of gas, and 20 pizzas.  In 2018, the average consumer consumed 12 haircuts, 640 gallons of gasoline, and 25 pizzas.  Calculate the Consumer Price Index for 2018, using 2010 as the base year.

e.  Suppose the Consumer Price Index in 2019 is 120.  What is the rate of inflation from 2018 to 2019?  Express your answer as a percentage (not a decimal), rounded to one decimal place.

f.  Suppose your company borrowed $100,000 through a 8-year loan  in 2010.  What is the real value of that amount when you repaid it in 2018, based on the Consumer Price Index calculated in (d)?

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4.  Suppose an economy had 33.5 million people employed, 2.6 million unemployed, and 13.7 million not in the workforce.  Calculate unemployment rate, the labor force participation rate, and the employment-population ratio in this economy.  Express your answer as a percentage (not a decimal), rounded to one decimal place.

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5.  Consider the following data involving trade between the U.S. and Mexico:

Product	Domestic Price	29 DEC 2017:  US$1 = 19.663 Pesos	6 APR 2018:  US$1 = 18.292 Pesos
U.S. exports industrial machinery	$100,000	(a)	(c)
Mexico exports agricultural products	1000 Pesos	(b)	(d)

a - d.  Fill in the values in the table above.

e.  Explain what would happen to U.S. exports of industrial machinery to Mexico and U.S. imports of agricultural products from Mexico as a result of the exchange rate change from the end of the year.

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6.  Suppose the marginal propensity to consume is 0.80, the marginal propensity to invest is 0.10, and the marginal propensity to import is 0.15.

a.  Calculate the multiplier in this case.

b.  If autonomous investment increases by $200 billion due to increased confidence, what would be the eventual impact on the national income, using the multiplier calculated in (a).

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7.  Suppose the reserve requirement in the U.S. is 0.20.  Also suppose that the currency deposit ratio is 0.05 and the excess reserve ratio is 0.10.