Comments on HW1

For problem 2, you need to calculate a percentage change. If you need reminded how to do that, you take the difference between the "current value" and the "previous value", and dividing by the previous value. Multiply by 100 to put into percent.

For example, Year 1 GDP is 7 trillion. Year 2 GDP is 7.2 trillion. The percentage change from year 1 to year 2 is (7.2 - 7) / 7 which is then 0.2 / 7 which equals 0.02857 or about 2.9%.

I know we didn't get to talk about the GDP price index, but the formula is there. Try to figure it out. We'll go over at least one of the year's calculations in class. Reading in chapter 7 you'll learn that a price index is a measure of average prices. Changes (percentage changes) measure the inflation rate.

I hope that helps. See you on Monday, when we'll wrap up chapter 7 with a discussion of measuring price level changes (inflation) using the GDP price index (which you learn a bit about on problem 2 of the homework) and compare it with the Consumer Price Index (CPI). The CPI is more "consumer" oriented and arguably a better measure of how inflation impacts households (of course, it will also have its shortcomings). Hopefully we'll even have a video.

Remember, your first test is on Wednesday. The material on the test are chapters 6 and 7 as well as our class discussions.

--J