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Welcome toPMBA0608: Economics/Statistics Foundation

Fall 2006Session12: November 29

Southern Campus19:30-21:00

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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 (If) added to I

c. Selling car from inventory has two effects 1. negative change in inventories = negative

inventory investment (Ii) subtracted from I2. 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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# 1, Page 526 of Econ.d. You buy Pizza none durable consumption

added to Ce. California repaves highway government

purchases added to Gf. Your parents buying French wine has two

effects1. Addition to C2. 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 If added to I

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#4, Page 526 of Econ.

Part (a)

NGDP2005= Σ Pi, 05 Qi, 05= $200

NGDP2006= Σ Pi, 06 Qi, 06= $400

NGDP2007= Σ Pi, 07 Qi, 07= $800

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#4, Page 526 of Econ.

Part (a)

RGDP2005= Σ Pi, 05 Qi, 05 =$200

RGDP2006= Σ Pi, 05 Qi, 06 =$400

RGDP2007= Σ Pi, 05 Qi, 07 =$400

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#4, Page 526 of Econ.

Part (a)GDP deflator05 = (NGDP05/ RGDP05) X 100=

(200/200) X 100 = 100GDP deflator06 = (NGDP06/ RGDP06) X 100=

(400/400) X 100 = 100GDP deflator07 = (NGDP07/ RGDP07) X 100=

(800/400) X 100 = 200

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#4, Page 526 of Econ.

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 %Δ RGDP %Δ GDP deflator

2005 -- -- --

2006 [(400-200)/200]* 100= 100

100 0

2007 100 0 100

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#4, Page 526 of Econ. 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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#5, Page 526 of Econ.Year NGDP GDP D

(base year = 1996)

%ΔNGDP %ΔGDPD RGDP= (NGDP/GDPD)*100

%ΔRGDP

1999 9269 113 --- --- 8203 ---

2000 9873 118 6% 4% 8367 2%

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#5, Page 526 of Econ.

f. NGDP grew more than RGDP because prices went up.

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Note

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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#10, Page 527 of Econ.

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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To prepare yourself for Exam 21. 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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Exam 2 consists of

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)=.24a) P(U) = 0.4b) Let’s modify it to: What is the lowest

probability that only …

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Let’s do a picture for part bYou are selecting two individuals

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 (U) = 0.4

P (NU) = 0.36

P (DN) = 0.24

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Part (b) 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 = 0.1442. 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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3.23, page 111 of stat

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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Let’s do 3.35, Page 123

61% like term limit We select three individuals

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Part a 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)

0 0.0593

1 0.2783

2 0.4354

3 0.2270

P (x)

x0

0.1

0.2

0.3

0.4

0.5

1 2 3

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Part c 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 σ2= Σ (x – μ)2 P (x) σ2= (– 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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As you review for exam

Send me your problems/questions

See you Saturday at 9:00 a.m.

Good Luck