Problems 1. Determine which of the following would be counted in the spending approach of GDP. and which would not be counted. Identify the category under which it would fall (C, I, G, NX, or not counted). a The housecleaning services of a stay-at-home mom. b. The housecleaning services of the "Merry Maids" company. c. The babysitting services of a babysitter whose earnings are kept "off the books" and not reported to the tax authorities. . A brand new house built and sold this year. e. A new car made by Ford in the U.S., and sold to a household in the U.S. f. A new car made by Ford in the U.S. and sold in Mexico. g. Sale of a 2012 used Ford car. h. 3 shares of Ford Motor Company stock i. A new car made by Ford in the U.S. but not sold by the end of the year. j. A new car added to the fleet of taxis of Mr. Taxi Company. K. A new bridge to accommodate all the new and used cars and taxis on the road. 2. Use the following table to answer the next question: Stage of Production Stage of production Sales value of material Stage 1 Grapes produced in the 10 vineyard Stage 2 New wine produced at the 15 winery, stored in oak barrels Stage 3 Fermented wine stored in 20 wine bottles Stage 4 Wine bottles distributed by 25 the wholesaler Stage 5 Retail price of bottled wine 30 sold to consumer Chapter 5 - Macroeconomic Measurement: The Current Approach a Assuming that no intermediate inputs are used other than the ones named, what is the value added at each stage of production - Stage 1-5? b. Using the value added approach, what is the total contribution to the GDP of this chain of production? c. Using the expenditure approach, what is total contribution to the GDP of this good? Explain why the number you got in part c is (or is not) the same as that from part b. 3. The small economy of the United States of Sustainability has only three companies: a bicycle manufacturer, a wind energy producer, and an organic cheese company. The only costs these companies have are the cost of their inputs and wages, Assume there are no rents, no depreciation, and no net income payments from the foreign sector. Assume all the output is sold to consumers as final goods. The companies' profits = Value of output (total revenues) - total costs. Bicycle company Wind energy Organic cheese company company Cost of inputs $0 $0 SO Wages $50 $75 $25 Value of output $100 $150 $50 (total revenues) a Calculate the GDP of the United States of Sustainability using the income approach.3. The small economy of the United States of Sustainability has only three companies: a bicycle manufacturer, a wind energy producer, and an organic cheese company. The only costs these companies have are the cost of their inputs and wages. Assume there are no rents, no depreciation, and no net income payments from the foreign sector. Assume all the output is sold to consumers as final goods. The companies' profits = Value of output (total revenues) - total costs. Bicycle company Wind energy Organic cheese company company Cost of inputs $0 $0 $0 Wages $50 $75 $25 Value of output $100 $150 $50 (total revenues) a Calculate the GDP of the United States of Sustainability using the income approach. b. Calculate the GDP of the United States of Sustainability using the spending approach. c. Calculate the GDP of the United States of Sustainability using the value-added approach. 4. Assume a simple economy produces only two goods, corn and wheat. In the first year 100 bushels of corn are produced, and sold for $3 a bushel. Also in the first year, 50 bushels of wheat are produced, and sold for $5 a bushel. In the second year, 110 bushels of corn are produced, and sold for $3.50, while 55 bushels of wheat are produced, and sold for $5.50. Chapter 5 - Macroeconomic Measurement: The Current Approach 6 a. Calculate the nominal GDP in year 1 and 2. b. Using the constant-dollar approach, calculate the real GDP in year 1 and 2. Take year I as the base year. c. Calculate the growth in real GDP between years 1 and 2 (with year 1 as the base year). d. Calculate a constant weight price index for the second year, using the first year as the base. e. What is the growth rate of prices (inflation rate) from the first to the second year?5. Using the same example of the market in white deck chairs, describe and, on separate graphs, show the changes in equilibrium price and quantity that would occur in response to the following events. a A key input for making deck chairs becomes more expensive (ceteris paribus). b. In a highly publicized event, someone falls off a poorly constructed deck chair and sustains a serious head injury (ceteris paribus). Chapter 4 - Supply and Demand 6 Self Test 1. Which of the following is a characteristic of the sort of market imagined by classical macroeconomists? a A market with speculation b. A market with only one seller c. A market with long-term contracts d. A perfectly competitive market e. A long supply-chain market 2. Which of the following is true for a "self-correcting" market? a. The government sets the price and the market respects that decision. b. Imbalances between buyers and sellers are automatically reduced through changes in prices c. Sellers use their market power to set prices high and persistent surpluses are the result. d. Buyers use their market power to set prices low and persistent shortages are the result. e. Sellers use their market power to set prices high and persistent shortages are the result. Questions 3 to 5 refer to the following graph: The Supply Curve for Apartments S Price of Apartments (in $1000s) 7 8 9 10 11 Quantity of ApartmentsActive Review Fill in the Blank 1. A measure of welfare based on survey questions asking people about their own degree of life satisfaction is called 2. Additional or parallel accounting systems that provide measures of social and environmental factors in physical terms, without necessarily including monetary valuation, are called 3. A town is spending money to raise their dikes and strengthen their levees in order to prevent the neighboring river from flooding the town. Such spending would be considered to be _ 4. A measure of well-being expressed in monetary terms that has been transformed from the Index of Sustainable Economic Welfare (ISEW) is the 5. The index of well-being developed by the UNDP in 1990 that combines measures of health, education, and income is called the 6. Suppose a policy-maker estimates the value of household production by the expenditure it would take to pay someone else to do the same job. He or she would be using the cost approach. 7. The three types of functions that the natural environment plays in economic life are functions, functions, and functions. 8. The absorption and accumulation of mercury into the food chain would be an example of the _ function of the environment. 9. The measure of national production that subtracts both the depreciation of manufactured capital and the depreciation of natural capital is called 10. Suppose a policy-maker estimates the value of a forested hillside in preventing floods by the expenditure that would be needed to repair flood damage in the neighboring town. He or she would be using the _cost approach. Chapter 6 - Macroeconomic Measurement: Environmental and Social Dimension 2 True or False 11. Satellite accounts are a helpful way of measuring the monetary value of changes in a country's environmental resources. 12. Average subjective well-being grows as rapidly as GDP per capita. 13. The Genuine Progress Indicator and the Gross Domestic Product both exhibit strong upward trends in the United States for the period 1950-2004. 14. The failure to subtract the lost household production as more women entered the paid labor force over the last century means that the GDP growth over this period of time is overstated. 15. The first estimates of the value of household services in the U.S. were produced more than 80 years ago. 16. Water filtration provided by wetlands is an example of a sink function of the environment.1. Suppose an investigator has 50 years of data on rates of industrial production and annual accumulations of CO2, and discovers a positive relationship between the two variables. This is an example of what type of investigation? a Theoretical investigation b. Empirical investigation C. Historical investigation d. Both A and B. e. A, B, and C. 2. What does the Production Possibilities Frontier represent? a A catalog of all possible production options, represented as percentages. b. The tradeoffs between production and consumption options. c. The tradeoffs between possible production levels for two goods. d. The amount that a society could produce if it devoted all its resources to producing one good. e. The possible gains from international trade in two or more goods. 3. Which of the following factors could expand a society's production possibilities frontier? a. Increased butter production. b. Shifting from one product to another. C. Producing air pollution. d. Depleting resources now instead of later. e. Technological innovations. Questions 4 and 5 refer to the following scenario: Erasers Pencils Chapter 2 - Useful Tools and Concepts An economy produces two goods: pencils and erasers. Use the graph shown above depicting two possible production possibilities frontiers (PPFs) for this economy to answer questions 4 and 5. 4. Which of the following events could cause the PPF to shift out? a. Workers become less productive due to poor working conditions. b. A hurricane destroys vital resources for pencil production. C. A new machine is invented that makes it easier to produce both pencils and erasers. d. All production costs rise proportionally. e. The cost of eraser inputs goes up. 5. Which of the following statements is true? a. Moving from point C to point B requires shifting resources away from eraser production and into pencil production. b. Point B represents a less efficient resource mix than point C. c. Depletion of nonrenewable resources could lead the economy to shift from point C to point D. d. Utility is maximized at point A. e. At point A, society is producing all the pencils it can. 6. The nation of Anyplace produces two goods, chairs and tables. Anyplace can produce the chairs and tables using either sustainable methods or resource-depleting methods. If Anyplace chooses resource-depleting methods, which of the following statements is