Assume that a grower of flower bulbs

Macroeconomics

1. Using the following national income accounting data, compute (a) GDP, (b) NDP, and (c) NI. All figures are in billions.

Category

Value

Compensation of employees

$196.2

U.S. exports of goods and services

19.8

Consumption of fixed capital

11.8

Government purchases

59.4

Taxes on production and imports

14.4

Net private domestic investment

52.1

Transfer payments

13.9

U.S. imports of goods and services

16.5

Personal taxes

40.5

Net foreign income

2.2

Personal consumption expenditures

219.1

Statistical discrepancy

0.0

Instructions: Round your answers to one decimal place. a. GDP = $ billion b. NDP = $ billion c. National Income = $ billion

2. The data for a hypothetical economy in a given year are as follows:

Category

Value

Personal consumption expenditures

$50 billion

Purchases of stocks and bonds

$30 billion

Net exports

−$10 billion

Government purchases

$20 billion

Sales of secondhand items

$8 billion

Gross investment

$25 billion

What is the country’s GDP for the year? $ billion

3. 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 $160,000 from selling the bulbs directly to final customers. What amount would these two transactions add to personal consumption expenditures and thus to GDP during the year?

4. Suppose that in 1984 the total output in a single-good economy was 7,000 buckets of chicken and that the price of each bucket of chicken was $10. In 2005 the price per bucket of chicken was $16 and 22,000 buckets were produced. Determine the GDP price index for 1984, using 2005 as the base year. Instruction: Enter your response as an index number rounded to one decimal place. GDP price index = By what percentage did the price level, as measured by this index, rise between 1984 and 2005? % What were the amounts of real GDP in 1984 and 2005? In 1984 real GDP = $ In 2005 real GDP = $

5. Data for the country Upper Mongoose is given in the table below:

Category

Value

Net exports

$50 billion

Value of new goods and services produced in the underground economy

$80 billion

Personal consumption expenditures

$450 billion

Value of the services of stay-at-home parents

$30 billion

Gross domestic investment

$100 billion

Government purchases

$100 billion

Total

$810 billion

What is Upper Mongoose’s GDP for the year? $ billion What is the size of the underground economy as a percentage of GDP? % By what percentage would GDP be boosted if the value of the services of stay-at-home spouses were included in GDP? %

6. The annual output and prices of a 3-good economy are shown in the table below.

Good

Price Year 1

Quantity of Goods Year 1

Price Year 2

Quantity of Goods Year 2

Quarts of Ice Cream

$4.00

3

$4.00

5

Bottles of Shampoo

$3.00

1

$3.00

2

Jars of Peanut Butter

$2.00

3

$2.00

2

What was this economy’s GDP in year 1? $ What was its GDP in year 2? $

7. Suppose that the annual rates of growth of real GDP of Econoland over a five-year period are as follows:

Year

Growth Rate

1

4%

2

2%

3

-2%

4

4%

5

6%

What was the average of these growth rates in Econoland over these 5 years? Instructions: Round your answer to one decimal place. % What term would economists use to describe what happened in year 3? If the growth rate in year 3 had been a positive 5 percent rather than a negative 2 percent, what would have been the average growth rate? %

8. Suppose that Glitter Gulch, a gold mining firm, increased its sales revenues on newly mined gold from $75 million to $150 million between one year and the next. Assuming that the price of gold increased by 100 percent over the same period, by what numerical amount did Glitter Gulch’s real output change? If the price of gold had not changed, what would have been the change in Glitter Gulch’s real output? $ million

9. A mathematical approximation called the rule of 70 tells us that the number of years that it will take something that is growing to double in size is approximately equal to the number 70 divided by its percentage rate of growth. Thus, if Mexico’s real GDP per person is growing at 7 percent per year, it will take about 10 years (= 702formula11.mml7) to double. Apply the rule of 70 to solve the following problem. Real GDP per person in Mexico in 2005 was about $11,000 per person, while it was about $44,000 per person in the United States. If real GDP per person in Mexico grows at the rate of 2 percent per year, how long will it take Mexico’s real GDP per person to reach the level that the United States was at in 2005? (Hint: How many times would Mexico’s 2005 real GDP per person have to double to reach the United States’ 2005 real GDP per person?) years

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