Economics components of GDP

1. What components of GDP (if any) would each of the following transactions affect? Explain (a) A family buys a new dishwasher. (b) Aunt Jane buys a new house (c) Professor Tung buys a burrito at a new Taqueria (d) The California State Government builds a new park on Sloat St. (C) Your parents buy a bottle of French wine produced in France (f) Honda expands its factory in Marysville, Ohio (g) The Federal Government gives Burt $5,000 in unemployment benefits (11) Jake purchases a bond in a financial market (i) Ford purchases a tool used to build the rims in tires 2. Below are some data from the land of milk and honey Price of Quantity of Price of Quantity of Year Milk Milk Honey Honey 2010 S] 100 quarts $2 50 quarts 201 l 31 200 $2 100 2012 $2 200 $4 100 Compute nominal GDP, real GDP. and the GDP deflator for each year, using 2010 as the base year. (1)) Compute the percentage change in nominal GDP. real GDP, and the GDP deflator in 2011 and 2012 from the preceding year. For each year, identify the variable that does not change. Explain in words why your answer makes sense. (c) Did economic well-being rise more in 2011 or 2012? Explain. 3. Which contributes more to GDP ~ the production of an economy car or the production of a luxury car? \Vlry? (a) Why do economists use real GDP rather than nominal GDP to gauge economic well-being? 4. Revised estimates of US. GDP are usually released by the government near the end of each month. Find a newspaper article that reports on the most recent release or read the news release yourself at httpqx” y”www.bea.gov, the website of the US. Bureau of Economic Analysis. Discuss the recent changes in real and nominal GDP and in the components of GDP. (The answer to this question should only be about 1 paragraph). 5. A farmer grows wheat. which he sells to a miller for $100. The miller turns the wheat into flour, which he sells to a baker for $150. The baker turns the wheat into bread. which he sells to consumers for $180. Consumer’s eat the bread. (a) What is GDP in this economy? Explain (b) Value added is defined as the value of a producer‘s output minus the value of intermediate goods that the producer buys to make the output. Assuming there are no intermediate goods beyond those described above. calculate the value added of each of the three producers. (e) \V hat is total value added of the three producers in this economy? How does it compare to the eco110111_y”‘s GDP? Does this example suggest another way of calculating GDP?
6. Which of the problems in the construction of the CPI might be illustrated by each of the following situations? Explain. (a) the invention of the iPod (1)) the introduction of air bags in cars (c) increased personal computer purchased in response to a decline in their price (d) more scoops of raisins in each package of Raisin Bran (e) greater use of fuel-efficient cars after gasoline prices increase 7. Consider the following information: A Ford Model T cost $500 in 1918, a movie ticket cost $.60 in 1960, and a comic book cost 8.50 in 1950. -Given the following information. determine what the price of these goods would be in 2014: -Consumer Price Index in 2014: 214.50; Consumer Price Index in 1918 4 8.97; Consumer Price Index in 1950 21.84; Consumer Price Index in 1960 : 26.81. (The base year for all calculations of CPI is the same). 8. UtiliZe internet research to find a country with low recent growth rates and low levels of GDP/Estandards of living. \Vhat are you recommendations for this country to improve and grow in the future? Be specific and explicitly reference course concepts mentioned in class or in the lecture notesJ‘PowerPoint slides. 9. Economists in F unlandia. a closed economy, have collected the following information about the economy for a particular year: Y 7′ 10,000 C : 6.000 T i 1.500 G i 1.700 The economists also estimate. that the investment function is: I : 3,300 – 1001‘ Where 1‘ is the country’s real interest rate. expressed as a percentage. Calculate private saving, public saving. national saving, investment, and the equilibrium real interest rate. 10. Suppose the government borrows $20 billion more next. year than this year. (a) Use a supply-and-demand diagram to analyze this policy. Does the interest rate rise or fall? (b) What happens to investment? To private saving? To public saving? To national saving? Compare the size of the changes to the $20 billion of extra government borrowing. (c) Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future. What does this belief do to private saving and the supply of loanable funds today? Does it increase or decrease the effects you discussed in parts (a) and (b)?

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