2. 1 Welcome to PMBA0608: Economics/Statistics Foundation Fall 2006 Session12: November 29 Southern Campus 19:30-21:00

3. 2 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 f )  added to I 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

4. 3 # 1, Page 526 of Econ. 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 f  added to I

5. 4 #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

6. 5 #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

7. 6 #4, Page 526 of Econ. Part (a) GDP deflator 05 = (NGDP 05 / RGDP 05 ) X 100= (200/200) X 100 = 100 GDP deflator 06 = (NGDP 06 / RGDP 06 ) X 100= (400/400) X 100 = 100 GDP deflator 07 = (NGDP 07 / RGDP 07 ) X 100= (800/400) X 100 = 200

8. 7 #4, Page 526 of Econ. Part (b) Note: Percentage change = [(This year’s figure – last year’s figure)/last year’s figure] *100

9. 8 #4, Page 526 of Econ. Year%Δ NGDP%Δ RGDP%Δ GDP deflator 2005-- 2006[(400-200)/200]* 100= 100 1000 20071000

10. 9 #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

11. 10 #5, Page 526 of Econ. YearNGDPGDP D (base year = 1996) %ΔNGDP%ΔGDPDRGDP= (NGDP/G DPD)*100 %ΔRGDP 19999269113--- 8203--- 200098731186%4%83672%

12. 11 #5, Page 526 of Econ. f. NGDP grew more than RGDP because prices went up.

13. 12 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

14. 13 #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

15. 14 To prepare yourself for Exam 2 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.

16. 15 Exam 2 consists of  Econ multiple choice questions  Econ problems  Econ essays  Stat short problems/questions  Stat longer (more involved) problems

17. 16 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 …

18. 17 Let’s do a picture for part b You 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

19. 18 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 = 0.144 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

20. 19 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)

21. 20 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

22. 21 Let’s do 3.35, Page 123  61% like term limit  We select three individuals

23. 22 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

24. 23 Note: Sum of probabilities = 1, why? xP(x) 0 0.0593 1 0.2783 2 0.4354 3 0.2270 P (x) x 0 0.1 0.2 0.3 0.4 0.5 123

25. 24 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 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

26. 25 As you review for exam  Send me your problems/questions  See you Saturday at 9:00 a.m.  Good Luck