Welcome to
PMBA0608:
Economics/Statistics
Foundation
Fall 2006
Session12: November 29
Southern Campus
19:30-21:00
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Discuss Assignment 6:
# 1, Page 526 of Econ.
a.
A family buys a new refrigerator  durable consumption  added to C b.
Aunt Jane buys a new house  fixed investment (I )  added to I f c.
Selling car from inventory has two effects
1. negative change in inventories = negative inventory investment (I i
)  subtracted from I
2. Added to C or I or X or G
 1 and 2 Cancel each other
 Net effect zero. Is that ok ?
 Note the value of car was accounted for when it was added to inventories
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d. You buy Pizza  none durable consumption  added to C e. California repaves highway  government purchases  added to G f. Your parents buying French wine has two effects
1. Addition to C
2. Addition to Imports  M goes up  net exports go down
 1 and 2 Cancel each other.
 Is that ok?
g. Honda expands its factory in Ohio  I added to I f

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#4, Page 526 of Econ.
Part (a)
NGDP
2005
=
Σ
P i, 05
Q i, 05
= $200
NGDP
2006
=
Σ
P i, 06
Q i, 06
= $400
NGDP
2007
=
Σ
P i, 07
Q i, 07
= $800
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#4, Page 526 of Econ.
Part (a)
RGDP
2005
=
Σ
P i, 05
Q i, 05
=$200
RGDP
2006
=
Σ
P i, 05
Q i, 06
=$400
RGDP
2007
=
Σ
P i, 05
Q i, 07
=$400
5

#4, Page 526 of Econ.
Part (a)
GDP deflator
05
= (NGDP
05
/ RGDP
100= (200/200) X 100 = 100
05
) X
GDP deflator
06
= (NGDP
06
/ RGDP
100= (400/400) X 100 = 100
06
) X
GDP deflator
07
= (NGDP
07
/ RGDP
100= (800/400) X 100 = 200
07
) X
6

Part (b)
Note:
Percentage change =
[(This year’s figure – last year’s figure)/last year’s figure] *100
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#4, Page 526 of Econ.
Year % Δ NGDP
2005 --
% Δ RGDP % Δ GDP deflator
---
2006 [(400-200)/200]*
100= 100
2007 100
100
0
0
100
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 When prices don’t change (2006),
RGDP goes up by as much as NGDP does
 When prices go up as much as NGDP does (2007) , RGDP does not change
 Part (c)
 Economic well being is more closely associated with RGDP than NGDP
 In 2007, economic well being did not rise
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Year NGDP GDP D
(base year =
1996)
%ΔNGDP %ΔGDPD RGDP=
(NGDP/G
DPD)*100
%ΔRGDP
1999 9269 113 ----8203 ---
2000 9873 118 6% 4% 8367 2%
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f. NGDP grew more than RGDP because prices went up.
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 What increases RGDP?
 Increase in Q
 %ΔRGDP = %ΔQ
 What increases NGDP?
 Increase in P and increase in Q
 %ΔNGDP = %ΔQ + %ΔP
 Or
 %ΔNGDP = %ΔRGDP + %ΔP
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 Relatively speaking, India probably has more household production than
USA. So the gap between the true per capita RGDPs (the one that includes household production) of US and India may not be as high as indicated in this table
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1.
Study Chapters 5, 6 and 23 of your Econ book and answer the end of the chapter questions.
2.
Study Section 3.4 though Section 4.2 of your Stat book (pages 102-143) and answer the end of the section questions.
 The formulas will not be given to you
 The binomial table will be given to you
3.
Review your notes and the Power Point Slides covering Sections 7 through 12.
4.
Review Assignments 3 though 6.
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 Econ multiple choice questions
 Econ problems
 Econ essays
 Stat short problems/questions
 Stat longer (more involved) problems
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Let’s do some sample Stat questions
 Question 3.21, Page 111 of Stat
 P (U) = P (use internet)=0.4
 P (NU) = P (not use internet) =0.36
 P (DN) = P (don’t know)=.24
a) P(U) = 0.4
b) Let’s modify it to: What is the lowest probability that only …
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Let’s do a picture for part b
You are selecting two individuals
P(U)= 0.4
P (NU) = 0.36
P (U) = 0.4
P (NU) = 0.36
P (DN) = 0.24
P (U) = 0.4
P (NU) = 0.36
P (DN) = 0.24
P (DN) = 0.24
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 There are two ways to select one person who uses internet and one that doesn't
1.
What is the probability of the first person using the internet and the second person not using internet?
 O.4 X 0.36 = 0.144
2.
What is the probability of the first person not using the internet and the first person does?
 0.36 X 0.4 = 0.144
 The lowest probability that only one will use internet = 0.144+0.144=0.288
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 Two devices to activate the sprinkler
 The sprinkler will be activated by device A or device B or both
 Reliability of A is 0.91
 Reliability of B is 0.95
 P (sprinkler being activated)=?
 P (sprinkler being activated)= P (A or
B or both work)
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Note: You don’t want to double count the case that both devices will work
P (AUB) = union = Probability of A or B or both
P (AUB) = P (A) + P (B) – P (AB)
P (AUB) = 0.91 + 0.95 – (0.91 X 0.95) =
0.9955
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 61% like term limit
 We select three individuals
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 What is P( none likes term limit)?
 0.39 X 0.39 X 0.39 =0.0593
 What is P (one likes term limit)?
 (0.39 X 0.39 X 0.61) + (0.39 X 0.61 X 0.39) +
(0.61 X 0.39 X 0.39) =0.2783
 What is P (two likes term limit)?
 (0.39 X 0.61 X 0.61) + (0.61 X 0.39 X 0.61) +
(0.61 X 0.61 X 0.39) = 0.4354
 What is P (all like term limit)?
 0.61 X 0.61 X 0.61 = 0.2270
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Note: Sum of probabilities = 1, why?
x P(x)
P (x)
0 0.0593
1
2
0.2783
0.4354
0.5
0.4
0.3
0.2
0.1
0 1 2 3
3 0.2270
x
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 P (x≥ 2) = P (2) + P (3)= 0.4354
+0.2270= 0.6624
 Part d
 E(x) = μ = Σx * P (x)
 E(x) = 0.2783 + (2 * 0.4354) + (3 * 0.2270)=
1.83
 Variance
 σ 2 = Σ (x – μ) 2 P (x)
 σ 2 = (– 1.83) 2 * 0.0593 +(1- 1.83) 2 * 0.2783 +
(2- 1.83) 2 * 0.4354 + (3- 1.83) 2 * 0.2270 =
0.714
 Standard deviation = square root of variance=
0.845
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 Send me your problems/questions
 See you Saturday at 9:00 a.m.
 Good Luck
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