expert in economics
PROBLEMS 1. Suppose that annual output in year I in a 3-good economy is Personal consumption expenditures $245 3 quarts of ice cream, 1 bottle of shampoo, and 3 jars of peanut butter. In year 2, the output mix changes to 5 quarts of ice Net foreign factor income cream, 2 bottles of shampoo, and 2 jars of peanut butter. If the Transfer payments prices in both years are $4 per quart for ice cream, $3 per bottle Rents of shampoo, and $2 per jar of peanut butter, what was the econ- Consumption of fixed capital jdepreciation) omy's GDP in year 17 What was its GDP in year 2? LO27.1 . Assume that a grower of flower bulbs sells its annual output of Statistical discrepancy bulbs to an Internet retailer for $70,000. The retailer, in turn, Social Security contributions brings in $160,000 from selling the bulbs directly to final cus- Interest tomers. What amount would these two transactions add to per- Proprietors' Income sonal consumption expenditures and thus to GDP during the Net exports year? LO27.1 3. If in some country personal consumption expenditures in a spe- Dividends cific year are $50 billion, purchases of stocks and bonds are Compensation of employees 223 $30 billion, net exports are - $10 billion, government pur- Taxes on production and imports chases are $20 billion, sales of secondhand items are $8 billion, Undistributed corporate profits and gross investment is $25 billion, what is the country's GDP for the year? LO27.2 Personal taxes Below is a list of domestic output and national income figures Corporate income taxes for a certain year. All figures are in billions. The questions Corporate profits 56 that follow ask you to determine the major national income Government purchases 72 measures by both the expenditures and the income ap- Not private domestic investment 33 proaches. The results you obtain with the different methods should be the same. LO27.4 Personal saving 20 a. Using the above data, determine GDP by both the expenditures were produced. Determine the GDP price index for 1984, using and the income approaches. Then determine NDP. 2005 as the base year. By what percentage did the price level, as b. Now determine NI in two ways: first, by making the required measured by this index, rise between 1984 and 20052 What were additions or subtractions from NDP; and second, by adding the amounts of real GDP in 1984 and 20057 1027.5 up the types of income and taxes that make up NI. 7. The following table shows nominal GDP and an appropriate c. Adjust NI (from part b) as required to obtain Pl. price index for a group of selected years, Compute real GDP d. Adjust Pl (from part c) as required to obtain DI. Indicate in each calculation whether you are inflating or deflat- 5. Using the following national income accounting data, compute ing the nominal GDP data. LO27.5 (a) GDP, (b) NDP, and (c) NI. All figures are in billions. LO274 Nominal GDP. Price Index Real GDP. Compensation of employees $194.2 You Billions (2005 = 100) Billions U.5. exports of goods and services 17.8 1968 $ 909.8 22.01 Consumption of fixed capital 11.8 1978 2,293.8 40.40 Government purchases 59.4 1984 5,100.4 56 98 Taxes on production and imports 14.4 1998 8,793.5 85 51 Not private domestic investment 521 2008 14,441.4 108.48 Transfer payments 13.9 U.S. imports of goods and services 165 8. Assume that the total value of the following items is $600 billion Personal taxes 40.5 in a specific year for Upper Mongoose: net exports - $50 billions value of new goods and services produced in the underground Not foreign factor income 2.2 economy - $75 billion; personal consumption expenditures - Personal consumption expenditures 219.1 $300 billion; value of the services of stay-at home parents - Statistical discrepancy 0.0 $25 billion: gross domestic investment - $100 billion; govern- ment purchases - $50 billion. What is Upper Mongoose's GDP 6. Suppose that in 1984 the total output in a single-good economy for the year? What is the size of the underground economy as a was 7,000 buckets of chicken. Also suppose that in 1984 each percentage of GDP? By what percentage would GDP be boosted bucket of chicken was priced at $10. Finally, assume that in 2005 if the value of the services of stay-at-home spouses were in- the price per bucket of chicken was $16 and that 22,000 buckets cluded in GDP? LO27.6
