Download Advanced Macroeconomics

MACROECONOMICS I
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SEMINAR 1
DEFINITIONS
• gross domestic product (GDP)
The market value of an economy’s domestically produced goods and
services over a specified period of time, such as a year (nominal
GDP). Current year prices used in calculation.
• real GDP
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The real value of the nominal gross domestic product. Base year
prices used in calculation.
CALCULATING GDP
• Production approach
Multiply the output of each sector by their respective market price and
add them together
• Expenditure approach
Calculate the sum of the final uses of goods and services (all uses
except intermediate consumption)
Y = C + I + G + (X − M)
• Income approach
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• Y=R+W+π
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PROBLEM 1
You are given the following information about the economy:
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•
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Consumption = $1000
Government Expenditures = $700
Net Exports = -$100
Private Investment = $400
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What is the value of GDP?
PROBLEM 2
Suppose an economy’s national accounts are
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•
•
•
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GDP = 100
C = 70
I = 40
G = 20
EX = 20
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Using the national income identity find the value of imports (IM).
PROBLEM 3
A) Suppose Bethlehem Steel sells $2,000 worth of steel to Ford Motor
Company, other producers sell $5,000 worth of other inputs to Ford; Ford
then uses the steel and other inputs to make an Escort which it sells to
Motor Twins for $12,000. Then, the car dealership sells the Escort to an
accounting professor for $15,000.
− What is the total contribution to GDP made by this entire series of
transactions?
B) Suppose the accounting professor bargains hard, and pushes the car
dealerships price down to $12,200.
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– What is the total contribution to GDP then?
– Does this difference make sense to you?
PROBLEM 4
An economy has the following sectors: private households, flour producers and bread
producers.
• The flour producers pay their workers EUR 200 and sell 300 kilos of flour to the
bread makers and 240 kilos of flour to final consumers.
• The price for one kilo of flour is EUR 0.5.
• The bread producers pay their workers EUR 220 and sell 175 kilo bread to
domestic consumers
• Moreover, 75 kilo of bread are exported.
• The price for one kilo bread is EUR 2.
A) Describe in detail the 3 possibilities of calculating GDP and calculate the GDP for the
economy using one of these possibilities.
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B) Suppose that due to more efficient production techniques the price of bread
decreases from EUR 2 to EUR 1.5 in the next period. Moreover, assume that the
price of flour and the consumed quantities do not change. Calculate the inflation rate
based on the GDP deflator.
PROBLEM 5
Suppose that the total population on the 1st of January 2001 was 40 mil.
people, of which 30 mil. were above the age of 16. Suppose that among the
latter, 12 mil. people were not active and 2 mil. unemployed. 800,000 people
are expected to turn 16 during 2001 and half of them are expected to keep
studying and not to seek a job, while the other half is expected to seek a job
and be ready to start working immediately.
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How many people have to find a job during 2001 for the unemployment
rate to be 8%?
PROBLEM 6
Explain why each of the following would not be included in GDP.
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A) You buy a used bike for USD 50 in a yard sale
B) A taxi driver buys gasoline for his cab.
PROBLEM 7 (HW)
Consider an economy which produces just 4 goods: clocks, key chains,
bananas, and telescopes. Relevant price and output information is
contained in the table below:
Product
Price 05
Output 05
Price 07
Output 07
Clocks
$100
25 units
$110
30 units
Keychains
1
100
2
80
Bananas
2
500
2
900
Telescopes
150
100
185
150
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– Calculate the growth rate of real GDP between 2005 and 2007 for
this economy using firstly 2005 as a base year and then 2007 as a
base year. Calculate also the nominal GDP in both years.