Intermediate Macroeconomics Spring 2018 Professor Van Horn s. In 1975, Richard P

Question

Intermediate Macroeconomics Spring 2018 Professor Van Horn s. In 1975, Richard Petty won the NASCAR race in Richmond, earning $6,265. In 2006, Dale Earnhardt, Jr., won the race, earning $239,166. The CPI index was 52.5 in 1975 and 198.7 in 2006 (base year- 1982-1984). Calculate the real earnings (based on base year 1982-1984) of both Petty and Earnhardt. (10 points) here are numcrous ceconomio basines eycle modalsthat are cugable ofo siness cycle properties observed in the past, yet there is not one single, "perfect" econom del that is capable of explaining all aspects. Why might this the case? (10 points) r to the "Measuring What Matters" article from the online reading list. One of the backs to our current measurement method of GDP is that it "takes no account of t ciation of capital goods, and so it overstates the value of production." Suppose th my where GDP-$1,000, which is a total of C-600, I-300, G-100, and NX-0. fonitlatool i - 000 and denreciation of canita

Explanation / Answer

8.

Real earning for a given year is nominal earning for that year adjusted for inflation at a base year.

For Petty,

nominal earning in the year 1975 is 6265 and CPI is 52.5 implies real earning at the base year 1982-85 is 6265-52.5= 6212.5

For Earnhardt,

nominal earning in the year 1975 is 239,166 and CPI is 198.7 implies real earning at the base year 1982-85 is 239166-198.7= 238967.3

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