Elasticities
Calculate the percentage change in quantity demanded for a good with an initial Qd of 1,500 units and a final Qd of 1,175:
(%Change = (Difference/Original) x 100)
Decreased by 21.67%
Calculate the GDP for a nation given the following information (in billions US$)
Consumer Spending: $500
Business Investment: $200
Government Spending: $250
Exports: $150
Imports: $180
GDP = $920 billion
GDP = C+I+G+(X-M)
A tourist is traveling to Mexico from the United States. If 1 US dollar = 17.5 Mexican Pesos, how many Dollars would the tourist need to exchange to get 1,750 Pesos?
(Amount of Pesos / Exchange Rate) = Amount of USD
The tourist would need to exchange $100
The GDP deflator for a country was 112 in 2022 and increased to 119.8 in 2023.
Calculate the inflation rate between 2022 and 2023 using the GDP deflator.
The inflation rate is ~7%.
A coffee shop raises the price of a latte from $4.00 to $4.50. As a result, the quantity demanded falls from 200 to 160 cups per day.
Calculate the price elasticity of demand for the latte. Is it elastic, inelastic, or unit elastic?
% change in Qd = 20%
% change in Price = 12.5%
PED = % Change in Qd / % Change in Price
PED = 1.6; demand is elastic
Calculate the value of imports of goods and services given the following information (US$ billions):
Consumer Spending: $13,500
Investment: $4,000
Government Spending: $3,500
Exports of goods and services: $6,000
GDP: $20,500
The value of imports of goods and services is $6,500 billion.
A student returning from a trip to Europe has 180 euros left. If the current exchange rate is 1 euro = 1.10 U.S. dollars. How many U.S. dollars will the student receive when exchanging the euros?
180 x 1.10
The student will get $198.
In 2023, a country’s nominal interest rate was 8%, and the inflation rate was 5.5%.
Calculate the real interest rate.
The real interest rate is 2.5%.
The price of wheat increases from $6.00 to $7.20 per bushel. In response, the quantity supplied rises from 500 to 650 bushels.
Calculate the price elasticity of supply and determine whether it is elastic, inelastic or unit elastic.
% change in Qs = 30%
% change in Price = 20%
PES = 1.5; supply is elastic
Calculate the unemployment rate for a country with a labor force of 115 million and 15 million unemployed people.
(15 million / 115 million) x 100
Unemployment Rate = 13%
A country exports $300 billion worth of goods and services and imports $350 billion. It also receives $25 billion in net income from abroad and $10 billion in net current transfers.
What is the value of the current account balance? Is it a surplus or a deficit?
Current account deficit of $15 billion
In 2022, a country recorded the following values (in billions):
Exports: $800; Imports: $850; Net income from abroad: $15; Net current transfers: $5
In 2023, the values were:
Exports: $900; Imports: $875; Net income from abroad: $10; Net current transfers: $0
Calculate the change in the current account balance from 2022 to 2023. Did the balance improve or worsen?
The current account improved by $65 billion from 2022 to 2023.
Tom's monthly income increases from $3,000 to $3,600. As a result, his quantity demanded for organic eggs for his food truck goes from 20 cartons to 30 cartons per month.
Calculate the income elasticity of demand for organic eggs. Are eggs a normal or inferior good? Are they a luxury good?
YED = % Change in Qd / % Change in Income
% Change in Qd = 50%
% Change in Income = 20%
YED = 2.5; Organic eggs are a normal good and a luxury good in this case.
The consumer price index in a country was 110 in 2023 and increased to 121 in 2024.
Calculate the inflation rate for 2024:
(New CPI - Old CPI / Old CPI) x 100
Inflation Rate = 10%
A country receives $100 billion in foreign direct investment (FDI) and $50 billion in portfolio investment inflows. Its citizens invest $40 billion abroad.
What is the balance on the financial account?
Financial account surplus of $110 billion
In 2023, the following figures (in billions USD) were recorded for a country:
Balance of trade in services: +$40; Net income from abroad: –$20; Net current transfers: –$10; Current account balance: –$30; Foreign direct investment (FDI) inflows: +$70; Portfolio investment inflows: +$25; Change in reserve assets: –$5
Calculate the country’s balance of trade in goods for 2023.
The balance of trade in goods is –$40 billion
When the price of tea goes up from $2.00 to $2.50 per cup, the quantity demanded for coffee increases from 1,000 to 1,200 cups per day.
Calculate the cross price elasticity for coffee with regards to tea.
XED = % Change in Qd for Coffee / % Change in Price of Tea
% Change in Qd for Coffee: 20%
% Change in Price for Tea: 25%
XED = 0.8; coffee and tea are substitute goods
If the value is positive they are substitute goods, if the value is negative they are complementary goods.
A country's real GDP was $2.1 trillion in 2022 and increased to $2.268 trillion in 2023. Calculate the economic growth rate between 2022 and 2023.
(New GDP - Old GDP / Old GDP) x 100
Growth Rate = 8%
In 2023, a country recorded the following values (USD billions):
Exports: $500; Imports: $600; Net income: $20; Net transfers: $10
In 2024, the values were:
Exports: $550; Imports: $620; Net income: $25; Net transfers: $5
Calculate the change in the current account balance from 2023 to 2024. Did the balance improve or worsen?
2023 CAB = -70 billion; 2024 CAB = -40 billion
Change in CAB = +30 billion; the balance improved
The price of a movie ticket increases from $10 to $13. As a result, the number of tickets sold drops from 500 to 400 per weekend.
Calculate the price elasticity of demand for movie tickets. Is demand elastic, inelastic, or unit elastic?
PED = .67, demand is inelastic