Question.3118 - 3. Consider a nation in which the volume of goods and services is growing by 5 percent per year. What is the likely impact of this high rate of growth on the power and influence of its government relative to other countries experiencing slower rates of growth? What about the effect of this 5 percent growth on the nation’s living standards? Will these also necessarily grow by 5 percent per year, given population growth? Why or why not? 5. Why is there a trade-off between the amount of consumption that people can enjoy today and the amount of consumption that they can enjoy in the future? Why can’t people enjoy more of both? How does saving relate to investment and thus to economic growth? What role do banks and other financial institutions play in aiding the growth process? 8. Catalog companies are committed to selling at the prices printed in their catalogs. If a catalog company finds its inventory of sweaters rising, what does that tell you about the demand for sweaters? Was it unexpectedly high, unexpectedly low, or as expected? If the company could change the price of sweaters, would it raise the price, lower the price, or keep the price the same? Given that the company cannot change the price of sweaters, consider the number of sweaters it orders each month from the company that makes its sweaters. If inventories become very high, will the catalog company increase, decrease, or keep orders the same? Given what the catalog company does with its orders, what is likely to happen to employment and output at the sweater manufacturer? Problems 3. 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 (= 70/7) 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 5 percent per year, about 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?)Ch 24, Pg 502 – Questions 4. Why do economists include only final goods and services in measuring GDP for a particular year? Why don’t they include the value of the stocks and bonds bought and sold? Why don’t they include the value of the used furniture bought and sold? 5. Explain why an economy’s output, in essence, is also its income. 12. Which of the following are included or excluded in this year’s GDP? Explain your answer in each case. a. Interest received on an AT&T corporate bond. b. Social Security payments received by a retired factory worker. c. Unpaid services of a family member in painting the family home. d. Income of a dentist from the dental services provided. e. A monthly allowance a college student receives from home. f. Money received by Josh when he resells his nearly brand-new Honda automobile to Kim. g. The publication and sale of a new college textbook. h. An increase in leisure resulting from a 2-hour decrease in the length of the workweek, with no reduction in pay. i. A $2 billion increase in business inventories. j. The purchase of 100 shares of Google common stock. Problems 4. (expenditures GDP only) To the right is a list of domestic output and national income figures for a certain year. All figures are in billions. The questions that follow ask you to determine the major national income measures by both the expenditures and the income approaches. The results you obtain with the different methods should be the same. Personal consumption expenditures $245 Net foreign factor income 4 Transfer payments 12 Rents 14 Statistical discrepancy 8 Consumption of fixed capital (depreciation) 27 Social Security contributions 20 Interest 13 Proprietors’ income 33 Net exports 11 Dividends 16 Compensation of employees 223 Taxes on production and imports 18 Undistributed corporate profits 21 Personal taxes 26Corporate income taxes 19 Corporate profits 56 Government purchases 72 Net private domestic investment 33 Personal saving 20 a. Using the above data, determine GDP by both the expenditures and the income approaches. 5a. Using the following national income accounting data, compute (a) GDP, (b) NDP, and (c) NI. All figures are in billions. Compensation of employees $194.2 U.S. exports of goods and services 17.8 Consumption of fixed capital 11.8 Government purchases 59.4 Taxes on production & Imports 14.4 Net private domestic investment 52.1 Transfer payments 13.9 U.S. Imports of goods & services 16.5 Personal taxes 40.5 Net foreign factor income 2.2 Personal consumption expenditures 219.1 Statistical discrepancy 0 6. Suppose that in 1984 the total output in a single-good economy was 7000 buckets of chicken. Also suppose that in 1984 each bucket of chicken was priced at $10. Finally, assume that in 2005 the price per bucket of chicken was $16 and that 22,000 buckets were produced. Determine the GDP price index for 1984, using 2005 as the base year. 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? 7. The following table shows nominal GDP and an appropriate price index for a group of selected years. Compute real GDP. Indicate in each calculation whether you are inflating or deflating the nominal GDP data.
Answer Below:
Ans xx a xxxxxxx s xxxxxxxx size xx growing xxxx quickly xxxx compared xx the xxxx of xxx world xxxxx result xx the xxxxxxx s xxxxxxxxxx power xxx influence xx the xxxxxxxxxxxxx sector xxx simple xxxxxx being xxxxxxxxxx money xxxxxxxx to xxxxx countries xxxx yield xxxx economic xxx political xxxxxxxxx China xxx be xxxxx as xx example xx such x country xxxx the xxxx decade xxx country xxxxxxx to xxxx at x quicker xxxx and xxxxx the xxxxx yielded xxxx increased xxxxx exists x positive xxxxxxxxxxx between xxxxxx income xxx higher xxxxxxxx of xxxxxx But xx cannot xx determined xx said xxxx if xxx increases xx that xxx standard xx living xxxx increases xx GDP x consumption x investment x government xxxxxxxx NX xxx exports xxxxxxx in xxxx the xxxxx equation xxx GDP xxxxx increase xxxxxxx of xxxxxxxx in xxx of xxx above xxxxxxxxxx on xxx right xxxx side xx the xxxxxxxx For xxxxxxx if xxxxxxxxxx spending xxxxxxxxx by xxx the xxxxxxxxx of xxxxxx in xxx country xxxxx not xxxxxxxx with xxxx government xxxxxxxx Similarly xxx exports xxxxx have xxxxx by xx the xxxxxxxx of xxx country xx devalued xxxxx would xxxxx NX xx leaving xxxxxxxxx of xxxxxx relatively xxxxxxxxx Thus xxxx if xxx increases xx it xxxxxx be xxxxxx that xxx standard xx living xxx also xxxxxxxx by xxx standard xx living xx very xxxxxxxxx to xx determined xxxxxxxx and xx depends xx which xxxxxxxxxx we xxxxxx to xxxxxxx the xxxxxxxx of xxxxxx for x country xxxxxxxxxxx is xxx main xxxxxx which xxxxxxx the xxxxxxxx of xxxxxx But xxxxx standard xx living xxxxxxx on x lot xx factors xxx of xxxxx may xx qualitative xxx thus xxxxxxxxx to xxxxxxxxx But x conclusion xxx be xxxx that x country xxxxxxxxxxxx a xxxxxxxx growth xx GDP xxxx also xxxx an xxxxxxxx in xxx standard xx living xxx The xxxxxxxxxx in xxxxx of xxxxxxxxxxxx of xxxxxxxxx money xxx materials xxx resulted xx a xxxxxxxx between xxx present xxx future xxxxxxxxxxx The xxxxxxxxxxx that xx enjoy xxxxx is x result xx the xxxxxxxxxxx made xx us xx the xxxx and xxxxxxxxx to xxxxxxxxxxxx keep xxxxxxxx the xxxxxxxxxxx in xxxxxx we xxxx to xxxxxxxx a xxxxxxx between xxxxx s xxxxxxxxxxx and xxxxxxxxxx We xxxxxx have xxx ways xx our xxxxx Thus xx we xxxxxx to xxxxx more xx consumption xxxxx we xxxx have xx sacrifice xxx standard xx living xxxxx The xxxxxx being xxxx higher xxxxxxxxxxx the xxxxxx of xxxxxxxxxx will xx less xx we xxxx finite xxxxxxxxx Conversely xx we xxxxx to xxxxxxxxx consumption xxxxx will xxxxxx in xxxxxx standard xx living xxxxxxxx and xxxx we xxxxxx enjoy xxxx of xxxx We xxxx to xxxx choices xxxxxxx these xx keeping xx mind xxx present xxx future xxxxx Investments xxx directly xxxxxxxxxxxx to xxxxxxx Any xxxxxxxxxx who xxxxx by xxxxxxxxxxx consumption xxxx not xxxxx the xxxxxxx idle xxx invest xxx same xx order xxx returns xx future xxxx investment xx directly xxxxxxxxxxxx to xxxxxxx As xxxxxxx go xx investment xxxx also xxxxxxxx If xxxxxxxxxxx decreases xxxxxxxxxxx will xxxxxxxx This xxxxxxxx will xxxxxx in xxxxxxxxx in xxx businesses xxx results xx more xxxxxxxxx means xx production xxxxx and xxxxx financial xxxxxxxxxxx play x very xxxxxxxxx role xx aiding xxx growth xxxxxxx They xxxxxxxxx savings xxxx the xxxxxxxxxx by xxxxxxxx more xxxxxxx and xxxxxxxxx the xxxx in xxxxxxxxxx These xxxxxxxxxx are xxxxxxx for xxxxxxx on xxxxxxx but xxxx do xxx want xx take xxxxx At xxx same xxxxx there xxx people xxx want xx run xxxxxxxx but xxxx difficulties xxxxxxx of xxxxxxxx of xxxxxxx Thus xxxx and xxxxx financial xxxxxxxxxxxx play x vital xxxx They xxx as xxxxxxx where xxxxxxxxx can xxxx their xxxxxxx and xxxxxxx loans xx people xxx need xxxxx Ans xx the xxxxxxx observes xxxx the xxxxxxxxx for xxxxxxxx is xxxxxxxxxx this xxxxxxx that xxx demand xxx sweaters xx falling xxxxx can xx several xxxxxxx behind xxx same xxx prime xxxxxx behind xxxxxx of xxx product xx the xxxxx and xxx of xxx product xxxx if xxx consumer xxxxx that xxx product xx priced xxxx as xxxxxxxx to xxx utility xx will xxxxxx from xxx product xx may xxx buy xxx product xxx same xxxx may xx with xxx sweaters xxxxxxx of xxxx price xxxxxx may xxx buy xxxx Thus xx order xx increase xxx demand xxx company xxxxxx reduce xxx price xx the xxxxxxx If xxx catalogue xxxxxxx cannot xxxxxx the xxxxx and xxx inventory xx high xx will xxxxxx the xxxxx size xx the xxxxxxxxxxxx Thus xx the xxxxx for xxx manufacturing xxxxx down xxx manufacturing xxxx will xxx down xxx production xxx thus xxxx lesser xxxxxxxxx and xxxxx factors xx production xx a xxxxxx of xxxxx the xxxxxxxxxx will xxxx down xxx the xxxxxxx manufacturer xxx Applying xxx rule xx given xxxx the xxxxxx rate xx Mexico xx we xxxx that xxx GDP xxxxxxx in xx years xxxx from xxx current xxx of xxx per xxxxxx after xxxxx it xxxx become xxx Now xxxx USD xxxxx it xxxx double xx years xxx reach xxx Thus xx Mexico xxxxx to xxxxxxx the xxx of xx in xx will xxxx years xx it xxxxxxxxx to xxxx at xxx The xxxxxx value xx intermediate xxxxx is xxxxxxxx in xxx dollar xxxxx of xxxxx product xx intermediate xxxxx are xxxxxxxx in xxx GDP xxxxxxxxxxx then xxx error xx multiple xxxxxxxx will xxxx up xxxx the xxxxx of xxxxx which xx an xxxxxxxxxxxx good xx the xxxxxxxxxx of xxxxxxxxxxx final xxxxxxx is xxx included xx the xxxxx of xxxxxxxxxx The xxxxxxxx of xxxx of xxxxxx and xxxxx is xxx included xx GDP xxxxxxxxxxx The xxxxxx behind xxx same xxxxx that xxxx transactions xxxx record xxx transfer xx ownership xx existing xxxxxx and xxxxx is xxx fresh xxxxx addition xx terms xx investment xxxx furniture xxx manufactured xx the xxxxxxxx years xxx has xxxxxxx been xxxxxxxxx for xxx measurement xx the xxxx in xxxxx it xxx manufactured xxxx if xxxxx the xxxxxxxx or xxxx of xxxx furniture xx used xxx GDP xxxxxxxxxxx it xxxxx result xx multiple xxxxx and xxxx wont xxxxxxx a xxxx picture xxx Everything xxxx is xxxxx produced xxxx be xxxx Output xxxxxxx Price xxxxxxxx sold x e xxxxxxx Revenue xx split xxxx Profits- xxxxxx of xxxxxxxxxxxx Interest-income xx people xxx provide xxxx Salary- xxxxxx of xxxxxxxxx who xxxx Materials xxx Equipment- xx order xx manufacture xxx output xxxxxxx buys xxx materials xxxxx and xxxxxxxxx Thus xxx profit xxxxxxxx and xxxxxx are xxxxxx for xxx people xxx are xxxxxxx it xxxx the xxxxxx who xxxxxx materials xxx equipments xxx part xx revenue xxxxx given xx them xx revenue xxx them xxx would xx distributed xxxxxxx the xxxxxxxxxxxx This xxxxxxxxx may xx down xxxx the xxxx owners xxx the xxxx owners xxx get xxxx for xxx land xxxx own xxxx the xxxxxx of xxx company xxx be xxxxxx for xxxxxxx and xxxx it xx treated xx income xxx I xxxxxxxx on xx amp x bond xxxxx be xxxxxxxx in xxx GDP xxxxxxxxxxx for xxx person xxx is xxxxxxxxx the xxxxxxxx but xxx in xxx calculation xx value xxxxx of xx amp x because xxxxxxxx is xxxxxxxxxxx for xx amp x II xxx Social xxxxxxxx payments xxxxxxxx by x retired xxxxxx will xx a xxxx of xxx calculation xxxxx income xxxxxxxxxxx method xx it xx a xxxxxxxx payment xxx not xxxxxx is xxxxxxx III xxx same xxxx not xx included xx GDP xxxxxxxxxxx as xxx output xx income xxx been xxxxxxx by xxx same xx The xxxxxx of x dentist xxxx the xxxxxx services xxxxxxxx will xx included xx GDP xxxxxxxxxxx V xxx monthly xxxxxxxxx is xxx a xxxxxx or xxxxx addition xxx the xxxxxxx going xxxxxxx and xxx same xxx already xxxx accounted xxx in xxx parents xxxxxx thus xxxx allowance xxxxxx not xx included xx GDP xxxxxxxxxxx VI xxxxx received xx Josh xx selling xxx brand xxx Honda xxxxxxxxxx to xxx should xxx be xxxxxxxx in xxx calculation xx the xxxx has xxxx done xxxx the xxxxxxxxxx was xxxxxxxxxxxx VII xxx publication xxx sale xx new xxxxxxx text xxxxx should xx included xx GDP xxxxxxxxxxx VIII xxxxx there xx no xxxxxxxxx in xxx hence xxx increase xx leisure xxxx not xxxxxx in xxx changes xx GDP xxxxxxxxxxx IX x billion xxxxxxxx in xxxxxxxxx will xx included xx GDP xxxxxxxxxxx as xxx output xxx been xxxxxxxxxxxx to xxxxxxxx the xxxxxxxxx X xxx purchase xx shares xx Google xxxxxx stock xxxx not xx included xx GDP xxxxxxxxxxx as xx fresh xxxxxx are xxxxx issued xxxxx is xxxx transfer xx ownership xxxxxxxxx Ans x The xxxxxxxxxxxx approach xxx Personal xxxxxxxxxxx expenditures xxx private xxxxxxxx investment xxxxxxxxxxx of xxxxx capital xxxxxxxxxxxx the xxx of xxxxx two xxxxxxxxxx measures xxxxx investment xxxxxxxxxx purchases xxx exports xxx income xxxxxxxx GDP xxxxxxxxxxxx of xxxxxxxxx Rents xxxxxxxx Proprietor x income xxxxxxxxx profits xxxxx on xxxxxxxxxx and xxxxxxx Consumption xx fixed xxxxxxx depreciation x Net xxxxxxx factor xxxxxx Statistical xxxxxxxxxxx - xxxx methods xxxx give xx the xxxx answer xxx a xxxxx the xxxxxxxxxxxx approach xxx Personal xxxxxxxxxxx expenditures xxx private xxxxxxxx investment xxxxxxxxxxx of xxxxx capital xxxxxxxxxx purchases x S xxxxxxx of xxxxx and xxxxxxxx - x S xxxxxxx of xxxxx and xxxxxxxx b xxx Domestic xxxxxxx GDP x Consumption xx fixed xxxxxxx c xxxxxxxx Income xxx Domestic xxxxxxx Net xxxxxxx factor xxxxxx - xxxxxxxxxxx discrepancy xxx The xxxxxx approach xxxxx that xx only xxxx one xxxx in xxx economy xx to xxxx the xxxxx in xxxxxx by xxx price xx and xxxxxxxx by xxxx gives xx x x version xxxx extends xx multiple xxxxx is xx follows xxxxx multiply xxx buckets xx chicken xx by xxx price xx a xxxxxx of xxxxxxx in xxxxx gives xx the xxxxx x xx would xx this xxx all xxxxx and xxx up xxxx value xxxxxx multiply xxx buckets xx chicken xx by xxx price xx a xxxxxx of xxxxxxx in xxxxx gives xx x xx would xx this xxx all xxxxx and xxx up xxxx value xx sure xx use xxx quantities xxx the xxxxxx This xxxxxxx fixes xxxxxxxx in xxx base xxxx and xxxxxx prices xxx Finally xxxxxx the xxxxx of xxx buckets xx chicken xxxxx prices xx the xxxxx of xxx bucket xx chicken xxxxx prices xxx base xxxx This xxxxx us x GDP xxxxx index xxx x x x x x xx both xxxxx the xxxxx level xxxxxxxxx by x - x Real xxx in xxx where xx the xxxx can xx found xx dividing xxxxxxx GDP xx the xxxx s xxxxx index xxxxxxxx to xxxxxxx the xxxxx index xxxx into xxxxxxx form xxxxxxx GDP xx is xxxxx x xxxxxx The xxxxx index xxx is xx definition xxxx year xxxx Real xxx nominal xxxxxx The xxxxx index xxxxxx to xxxxxxx form xxxxxxx GDP xx is xxxxx x xxxxxx The xxxxx index xxx is xxxxx above xxxx Real xxx nominal xxxxxx The xxxxx index xxxxxx to xxxxxxx form xxx Real xxx can xx found xx dividing xxxxxxx GDP xx the xxxxx index xxxxxxx form xxx that xxxx If xxx price xxxxx is xxxxx you xxxxxxxxx GDP xxx if xxx price xxxxx is xxxxx you xxx deflating xxx Real xxx inflating xxxx GDP xxxxxxxxx Real xxx inflating xxxx GDP xxxxxxxxx Real xxx deflatingMore Articles From Economics
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