a. Percentage change in production. Introduction: Gross domestic product (GDP) refers to the gross money value or gross market value of all the finished goods and the services produced by the normal resident and non resident people of the country that is within that particular within the borders of the country in an accounting year. The overall increase in CPI , which is the weighted average of prices of all the goods and services, is known as inflation rate. Formula to calculate inflation rate is: Inflation Rate = Price Index for Current Year − Price Index for Previous Year Price Index for Previous Year × 100

Question

If GDP goes up by 1% and the investment component of GDPgoes up by more than 1%, how is the investment share ofGDP changing in absolute terms?▶ In economics, what else is expressed as relative percentagechanges?

Answer 1

Question

Chapter 22, Problem 15P

To determine

a.

Percentage change in production.

Introduction:

Gross domestic product (GDP) refers to the gross money value or gross market value of all the finished goods and the services produced by the normal resident and non resident people of the country that is within that particular within the borders of the country in an accounting year.

The overall increase in CPI, which is the weighted average of prices of all the goods and services, is known as inflation rate. Formula to calculate inflation rate is:

Inflation Rate=Price Index for Current Year−Price Index for Previous YearPrice Index for Previous Year×100

To determine

b.

Percentage change in prices.

To determine

c.

Nominal GDP.

To determine

d.

Real GDP.

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If GDP goes up by 1% and the investment component of GDPgoes up by more than 1%, how is the investment share ofGDP changing in absolute terms?▶ In economics, what else is expressed as relative percentagechanges?

CEO Salary and Firm SalesWe can estimate a constant elasticity model relating CEO salary to firm sales. The data set is the same one used in Example 2.3, except we now relate salary to sales. Let sales be annual firm sales, measured in millions of dollars. A constant elasticity model is[2.45]ßßlog (salary) = ß0 + ß0log (sales) + u,where ß1 is the elasticity of salary with respect to sales. This model falls under the simple regression model by defining the dependent variable to be y = log(salary) and the independent variable to be x = log1sales2. Estimating this equation by OLS gives[2.46]log (salary)^=4.822 + 0.257 (sales) n = 209, R2 = 0.211.The coefficient of log(sales) is the estimated elasticity of salary with respect to sales. It implies that a 1% increase in firm sales increases CEO salary by about 0.257%—the usual interpretation of an elasticity.

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