Question 1:

How is the problem of changing price resolved? (pick one answer below)

1. Real values are inflated or deflated so that nominal changes in output are recorded.
2. Nominal values are deflated so that personal consumption changes are recorded.
3. Real values are deflated so that personal consumption changes are recorded.
4. Nominal values are inflated or deflated so that real changed in output are recorded.

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Question 2:

Assume that a grower of flower bulbs sells its annual output of bulbs to an internet retailer for $70,000. The retailer, in turn, brings in $110,000 from selling the bulbs directly to final customers.

a) What amount would these two transactions add to personal consumption expenditure and thus to GDP during the year? $__________

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Question 3:

Suppose that in 1984, the total output in a single-good economy was 7000 buckets of chickens. Also suppose that in 1984, each bucket of chicken was priced at $10. Finally, assume that in 2005, the price of chicken was $16 and that 22,000 buckets were produced.

a) determine the GDP price index for 1984, using 2005 as base year.

GDP price index = __________ (Round answer to one decimal place)

b) By what percentage did the price level, as measured by this index, rise between 1984 and 2005? __________%

c) What was the GDP in 1984?

GDP in 1984 was $__________

d) What was the GDP in 2005?

GDP in 2005 was $__________

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Question 4:

The annual output and prices of a three-good economy are shown in the table below. Price Quantity of Price Quantity of Good Year 1 Goods Year Year 2 Goods Year 2 Litres of Ice Cream $5 3 $5 5 Bottles of Shampoo $ 4 $ 4 IN Jars of Peanut Butter $ 3 3 $ 3 NThe data for a hypothetical economy in a given year are as follows: Category Value Personal consumption expenditures $80 billion Purchases of stocks and bonds $30 billion Net exports -$10 billion Government purchases $30 billion Sales of second-hand items $8 billion Gross investment $25 billionUsing the following national income accounting data, compute GDP by the expenditures approach. All figures are in billions. Category Value Wages, salaries, and supplementary labour income $194 . 2 Canadian exports of goods and services 17 . 8 Capital consumption allowances (depreciation) 11 . 8 Government current purchases of goods and services 59.4 Net investment (net capital formation) 52. 1 Canadian imports of goods and services 16.5 Personal consumption expenditures 219. 1Using the following national income accounting data, compute GDP by both the expenditures and income approaches. All figures are in billions. Category Value Profits of corporations and government enterprises before taxes $46 Exports 94 Capital consumption allowances 65 Government current purchases of goods and services 113 Net income of farm and unincorporated businesses 24 Taxes less subsidies on factors of production 75 Wages, salaries, supplementary labour income 371 Gross investment 167 Indirect taxes less subsidies on products 11 Interest and investment income 59 Personal consumption expenditures 284 Imports 7\fData for the country of Upper Mongoose are given in the table below. All figures are in billions of dollars. Category Value Net exports 50 Value of new goods and services produced in the underground economy 90 Personal consumption expenditures 350 Value of the services of stay-at-home parents 40 Gross domestic investment 150 Government purchases 100 Total 780