3. Consider an economy where 1999 is the base year used for all calculations of price indices and constant-price aggregates. The price of the average good counted in GDP was 5% higher in 1997 than in 1999 and real GDP in 1997 was $64,800. In 1998 the rate of inflation was -10% (10% deflation). Nominal GDP was $61,425 in 1998 and $66,000 in 1999.

a. Calculate nominal GDP for 1997. Show your work.

b. Determine whether there was a recession in 1998 (assume that when an aggregate increases/decreases from one year to the next, it also increases/decreases in each quarter within that year). Show your work and explain clearly.

c. Find the rate of inflation for 1999. Show your work.

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3. Traditional monetary and fiscal policy—the AS–AD view Consider an economy described by Figure 9-10, with out-

put lower than the natural level of output and the nominal interest rate at zero.

a. Draw Figure 9-10 and explain why the ADcurve has a ver- tical portion.

b. If the Federal Reserve increases the money supply, what will happen to the AS–ADdiagram you drew in part (a)? Will equilibrium output move closer to the natural level?

c. Given your answers to part (b), what policy options are available to the government to try to increase output? Consider traditional policy options only, and not financial policies. How does your answer relate to the policy deci- sions of the Obama administration and the U.S. Congress in February 2009?

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3. There are two types of firms in an industry. Type 1 firms have the costs TC() 91) 6250.25i and type 2 firms have costs TC(92) 500052. The fixed costs for both types of firms are NOT sunk (e) If consumers demand is Q”(p) 2400 10p what is the short-run equilibrium price and quantity? What are the long-run equilibrium price, quantity, and number of firms?

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3. The reinforced concrete.= shown uses normal weight concrete with 28-clay compressive strength of g 6,000 psi zmci Gr. 100 steel reinforcement The beam is subjected to positive momem. n. Determine the cracking moment of the hewn. Determine the maximum stress in Me concrete and the stress “n the minforcoment at service moment of 160 ft • kip.
18″

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3. Tax Problem:

Simpson is a single individual who is employed full-time by Duff Corporation. The year Simpson reports AGI of $50,000 and has incurred the following medical expenses:

Dentist charges

$ 900

Physician’s charges

1,800

Optical charges

500

Cost of eyeglasses

300

Hospital charges

2,100

Prescription drugs

250

Over-the-counter drugs

450

Medical insurance premiums

775

Calculate the amount of medical expenses that will be included with Simpson’s itemized deductions after any applicable limitations. Use the 2013 tax year information for reference.

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