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C H A P T E R 17: Introduction to Macroeconomics
Discussions
1. The total market value of all final goods and services
produced within a given period by factors of production
located within a country is
A) gross domestic product
B) gross national product
C) net national product
D) net national income
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Discussions
2. Gross domestic product measures
A) the total spending of everyone in the economy
B) the value of all output in the economy
C) the total income of everyone in the economy
D) All of the above
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Discussions
3. Which of the following is an example of a final good or
service?
A) Wheat a bakery purchases to make bread.
B) Coffee beans purchased to make coffee
C) Lumber purchased by a construction company to used
in building houses
D) A tractor purchased by a farmer to cultivate his farm
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Discussions
4.Double counting can be avoided by
A) including the value of intermediate goods in the current
year.
B) not counting the value of intermediate goods in GDP
C) including the value of intermediate goods in the GNP
but not in the GDP
D) including the value of intermediate goods in the
production year but not in the selling year of those
goods
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Discussions
5. Which of the following would NOT be counted in 2003's
GDP?
A) The value of a 2001 car you purchase from a car dealer
in 2003.
B) The 2003 salary of a used car salesperson
C) The commissions earned by a real estate agent in
selling houses built prior to 2003
D) The value of a computer manufactured in 2003 but not
sold in 2003
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Discussions
6. Income of Mexican citizens earned in the U.S. counts in
A) U.S. GNP.
B) Mexican GNP
C) Mexican GDP
D) All of the above
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Discussions
7. The equation for GDP using the expenditure approach
is
A) GDP = C + I + G + EX - IM.
B) GDP = C + I + G + (IM - EX).
C) GDP = C + I + G + EX + IM
D) GDP = C + I + G - EX - IM
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Discussions
8. The change in business inventories is measured as
A) final sales minus GDP.
B) final sales plus GDP
C) GDP minus final sales
D) the ratio of final sales to GDP
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Discussions
8. In 2004 final sales equal $100 billion, and the change in
business inventories is $20 billion.GDP in 2004 is
A) $120 billion.
B) $110 billion
C) $80 billion
D) cannot be determined from this information
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Chapter 2 - Discussion
Table 1
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1. Refer to Table 1, Personal consumption expenditures in billions of
dollars are
C = durable goods + non durable goods + services = 1650
2. Refer to Table 1, The value for gross private domestic investment in
billions of dollars is
I = Residential + Nonresidential + Changes in Inventory = 325
3. Refer to Table 1, The value for net exports in billions of dollars is
Net export = Export – import = 500 – 150 = 350
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4. Refer to Table 1 The value of government spending in billions of
dollars is
G = Federal purchase of goods + States and local purchase of goods =
GDP = 300 + 250 = 550
5. Refer to Table 1 The value of gross domestic product in billions of
dollars is
GDP = C + I + G + (X – M) =
GDP = 1650 + 325 + 550 + 350 = 2875
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Chapter 2 - Discussion
Table 2.
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1, Refer to Table 2. The value for GDP in billions of dollars is
GDP = C + I + G + x - M
I = Gross investment = Net investment + depreciation = 150 + 30 = 180
GDP = 500 + 180 + 90 + 60 – 40 = 790
2. Refer to Table 2, The value for GNP in billions of dollars is
GNP = GDP + receipts of factors of production from the rest of the
world – payments of factors of production to the rest of the world =
790 + 20 – 40 = 770
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3. Refer to Table 2. The value for NNP in billions of dollars is
NNP= GNP – Depreciation = 770 – 30 = 740
4. Refer to Table 2, The value for national income in billions of dollars
is
National Income = NNP – Indirect taxes + subsidies
National income = 740 – 0 + 0 = 740
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5. Refer to Table 2. The value for PI in billions of dollars is
PI = NI – amount of income not going to the households + dividends = 740 –
30 + 10 = 760
6. Refer to Table 2, The value for DPI in billions of dollars is
DPI = PI – Personal taxes
DPI = 760 – 90 = 670
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C H A P T E R 17: Introduction to Macroeconomics
Table 3
Item
Net investment
Million Item
$
1785
Million
$
Pension premiums
1760
Export
960
Corporate profits taxes
Import
350
Undistributed profits
0
1550
Net payments of factor income to the
rest of the world
- 890
Social security payments to
the households
340
Disposable personal income
3250
Depreciation
775
Saving
Government purchases
Production subsidies
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900
3370
Personal income
Indirect taxes
4235
12
320
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1, Refer to Table 3. The value for GDP in millions of dollars is
GDP = C + I + G + x - M
C = DPI - Saving = 3250 - 900 = 2350
Gross investment = net investment + depreciation = 1785 + 775 = 2560
GDP = 2350 +2560 +3370 +960 – 350 = 8890
2. Refer to Table 3, The value for GNP in millions of dollars is
GNP = GDP + Net payments of factor income to the rest of the world
= 8890 + (- 890) = 8890 – 890 = 8000
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C H A P T E R 17: Introduction to Macroeconomics
3. Refer to Table 3. The value for NNP in millions of dollars is
NNP= GNP – Depreciation = 8000 – 775= 7225
4. Refer to Table 3, The value for national income in billions of dollars
is
National Income = NNP – Indirect taxes + subsidies
National income = 7225 – 12 + 320 = 7533
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Chapter 2 - Discussion
Refer to the information provided in Table 4 below to answer the
questions that follow.
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1, Refer to Table 4. Assume that this economy produces only two
goods Good X and Good Y. The value for this economy's nominal
GDP in year 1
Nominal GDP year 1 = Sum (P1 x q1)
Production = q
Nominal GDP Y1
Prices = p
Year 1
Year 2
Year 3
Year 1
Year 2
Year 3
P1 x q1
Good x
50
75
100
1
1
1.2
50
Good y
100
100
130
0.6
0.75
1
60
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Refer to Table 4. Assume that this economy produces only two goods
Good X and Good Y. The value for this economy's nominal GDP in
year 2
Nominal GDP year 2 = Sum (P2 x q2)
Production = q
Nominal GDP Y2
Prices = p
Year 1
Year 2
Year 3
Year 1
Year 2
Year 3
P2 x q2
Good x
50
75
100
1
1
1.2
75
Good y
100
100
130
0.6
0.75
1
75
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Refer to Table 4. Assume that this economy produces only two goods
Good X and Good Y. The value for this economy's nominal GDP in
year 3
Nominal GDP year 3 = Sum (P3 x q3)
Production = q
Nominal GDP Y2
Prices = p
Year 1
Year 2
Year 3
Year 1
Year 2
Year 3
P2 x q2
Good x
50
75
100
1
1
1.2
120
Good y
100
100
130
0.6
0.75
1
130
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Refer to Table 4. Assume that this economy produces only two goods
Good X and Good Y. If year 1 is the base year, the value for this
economy's real GDP in year 2 is
Real GDP12 = (P1 x q2)
Production = q
Real GDP12
Prices = p
Year 1
Year 2
Year 3
Year 1
Year 2
Year 3
P1 x q2
Good x
50
75
100
1
1
1.2
75
Good y
100
100
130
0.6
0.75
1
60
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Refer to Table 4. Assume that this economy produces only two goods
Good X and Good Y. If year 1 is the base year, the value for this
economy's real GDP in year 3 is
Real GDP 13 = (P1 x q3)
Production = q
Real GDP13
Prices = p
Year 1
Year 2
Year 3
Year 1
Year 2
Year 3
P1 x q3
Good x
50
75
100
1
1
1.2
100
Good y
100
100
130
0.6
0.75
1
78
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Refer to Table 4. Assume that this economy produces only two goods
Good X and Good Y. If year 1 is the base year, the value for this
economy's real GDP in year 1 is
Real GDP 11 = (P1 x q1)
Production = q
Real GDP11
Prices = p
Year 1
Year 2
Year 3
Year 1
Year 2
Year 3
P1 x q1
Good x
50
75
100
1
1
1.2
50
Good y
100
100
130
0.6
0.75
1
60
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Refer to Table 4. Assume that this economy produces only two goods
Good X and Good Y. If year 2 is the base year, the value for this
economy's real GDP in year 1 is
Real GDP21 = (P2 x q1)
Production = q
Real GDP21
Prices = p
Year 1
Year 2
Year 3
Year 1
Year 2
Year 3
P2 x q1
Good x
50
75
100
1
1
1.2
50
Good y
100
100
130
0.6
0.75
1
75
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Refer to Table 4. Assume that this economy produces only two goods
Good X and Good Y. If year 2 is the base year, the value for this
economy's real GDP in year 2 is
Real GDP22 = (P2 x q2)
Production = q
Real GDP22
Prices = p
Year 1
Year 2
Year 3
Year 1
Year 2
Year 3
P2 x q2
Good x
50
75
100
1
1
1.2
75
Good y
100
100
130
0.6
0.75
1
75
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C H A P T E R 17: Introduction to Macroeconomics
Refer to Table 4. Assume that this economy produces only two goods
Good X and Good Y. If year 2 is the base year, the value for this
economy's real GDP in year 3 is
Real GDP23 = (P2 x q3)
Production = q
Real GDP23
Prices = p
Year 1
Year 2
Year 3
Year 1
Year 2
Year 3
P2 x q3
Good x
50
75
100
1
1
1.2
100
Good y
100
100
130
0.6
0.75
1
97.5
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C H A P T E R 17: Introduction to Macroeconomics
Refer to Table 4. Assume that this economy produces only two goods
Good X and Good Y. If year 3 is the base year, the value for this
economy's real GDP in year 1 is
Real GDP31 = (P3 x q1)
Production = q
Real GDP31
Prices = p
Year 1
Year 2
Year 3
Year 1
Year 2
Year 3
P3 x q1
Good x
50
75
100
1
1
1.2
60
Good y
100
100
130
0.6
0.75
1
100
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Refer to Table 4. Assume that this economy produces only two goods
Good X and Good Y. If year 3 is the base year, the value for this
economy's real GDP in year 2 is
Real GDP32 = (P3 x q2)
Production = q
Real GDP32
Prices = p
Year 1
Year 2
Year 3
Year 1
Year 2
Year 3
P3 x q2
Good x
50
75
100
1
1
1.2
90
Good y
100
100
130
0.6
0.75
1
100
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Calculate GDP Deflator and Inflation in the following cases
If year 1 is the base year, the value of GDP deflator in year 2
( Nominal GDP in Y2 / Real GDP12) x 100
( P2.q2 / P1.q2) x 100
= ( 150 / 135 ) x 100 = 111.1
In this case the Inflation rate between year 1 and 2 = 111.1 ‫ ـــ‬100 = 11.1 %
If year 2 is the base year, the value of GDP deflator in year 1
( Nominal GDP in Y1 / Real GDP22 ) x 100
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( P1.q1 / P2.q1 ) x 100
( 110 / 150 ) x 100 = 73.3
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Calculating GDP Deflator and Inflation
If year 1 is the base year, the value of GDP deflator in year 1
( Nominal GDP in Y1 / Real GDP11) x 100
( P1.q1 / P1.q1 ) x 100
( 110 / 110 ) x 100 = 100
If year 2 is the base year, the value of GDP deflator in year 2
( Nominal GDP in Y2 / Real GDP 22) x 100
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( P2.q2 / P2.q2 ) x 100
( 150 / 150 ) x 100 = 100
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Calculate GDP Deflator and Inflation in the following cases
If year 1 is the base year, the value of GDP deflator in year 3
( Nominal GDP in Y3 / Real GDP13) x 100
( P3.q3 / P1.q3) x 100
= ( 250 / 178 ) x 100 = 140.4
In this case the Inflation rate between year 1 and 3 = 140.4 ‫ ـــ‬100 = 40.4%
If year 3 is the base year, the value of GDP deflator in year 1
( Nominal GDP in Y1 / Real GDP 31 ) x 100
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( P1.q1 / P3.q1 ) x 100
( 250 / 160 ) x 100 = 156.2
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Discussions
The GDP deflator is the
A) difference between real GDP and nominal GDP
multiplied by 100.
B) difference between nominal GDP and real GDP
multiplied by 100
C) ratio of nominal GDP to real GDP multiplied by 100
D) ratio of real GDP to nominal GDP multiplied by 100
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