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 rsquo x economic xxxx is xxxxxxx more xxxxxxx when xxxxxxxx to xxx rest xx the xxxxx would xxxxxx in xxx country xxxxx 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 rsquo x consumption xxx Investment xx cannot xxxx two xxxx in xxx lives xxxx if xx choose xx enjoy xxxx of xxxxxxxxxxx today xx will xxxx to xxxxxxxxx the xxxxxxxx of xxxxxx today xxx reason xxxxx with xxxxxx consumption xxx amount xx investment xxxx be xxxx as xx have xxxxxx resources xxxxxxxxxx if xx chose xx sacrifice xxxxxxxxxxx today xxxx result xx higher xxxxxxxx of xxxxxx tomorrow xxx thus xx cannot xxxxx more xx both xx have xx make xxxxxxx amongst xxxxx to xxxxxxx in xxxx our xxxxxxx and xxxxxx needs xxxxxxxxxxx are xxxxxxxx proportional xx savings xxx individual xxx saves xx sacrificing xxxxxxxxxxx does xxx leave xxx savings xxxx but xxxxxx the xxxx in xxxxx get xxxxxxx in xxxxxx Thus xxxxxxxxxx is xxxxxxxx proportional xx savings xx savings xx up xxxxxxxxxx will xxxx increase xx consumption xxxxxxxxx investments xxxx increase xxxx increase xxxx result xx investing xx new xxxxxxxxxx and xxxxxxx in xxxx efficient xxxxx of xxxxxxxxxx Banks xxx other xxxxxxxxx instruments xxxx a xxxx important xxxx in xxxxxx the xxxxxx process xxxx encourage xxxxxxx from xxx households xx offering xxxx returns xxx investing xxx same xx businesses xxxxx households xxx looking xxx returns xx savings xxx also xx not xxxx to xxxx risks xx the xxxx point xxxxx are xxxxxx who xxxx to xxx business xxx face xxxxxxxxxxxx because xx shortage xx capital xxxx bank xxx other xxxxxxxxx institutions xxxx a xxxxx role xxxx act xx avenues xxxxx household xxx park xxxxx savings xxx provide xxxxx to xxxxxx who xxxx loans xxx If xxx company xxxxxxxx that xxx inventory xxx sweaters xx increasing xxxx implies xxxx the xxxxxx for xxxxxxxx is xxxxxxx There xxx be xxxxxxx reasons xxxxxx the xxxx The xxxxx reason xxxxxx demand xx any xxxxxxx is xxx price xxx use xx the xxxxxxx Thus xx the xxxxxxxx feels xxxx the xxxxxxx is xxxxxx high xx compared xx the xxxxxxx he xxxx derive xxxx the xxxxxxx he xxx not xxx the xxxxxxx The xxxx case xxx be xxxx the xxxxxxxx because xx high xxxxx people xxx not xxx them xxxx in xxxxx to xxxxxxxx the xxxxxx the xxxxxxx should xxxxxx the xxxxx of xxx sweater xx the xxxxxxxxx company xxxxxx change xxx price xxx the xxxxxxxxx is xxxx it xxxx reduce xxx order xxxx to xxx manufacturer xxxx if xxx order xxx the xxxxxxxxxxxxx comes xxxx the xxxxxxxxxxxxx unit xxxx cut xxxx the xxxxxxxxxx and xxxx need xxxxxx employees xxx other xxxxxxx of xxxxxxxxxx As x result xx which xxx employment xxxx come xxxx for xxx sweater xxxxxxxxxxxx Ans xxxxxxxx the xxxx of xxxxx that xxx growth xxxx of xxxxxx is xx know xxxx the xxx doubles xx or xxxxx Thus xxxx the xxxxxxx GDP xx USD xxx person xxxxx years xx will xxxxxx USD xxx from xxx again xx will xxxxxx in xxxxx and xxxxx USD xxxx if xxxxxx wants xx achieve xxx GDP xx US xx it xxxx take xxxxx if xx continues xx grow xx Ans xxx dollar xxxxx of xxxxxxxxxxxx goods xx included xx the xxxxxx value xx final xxxxxxx If xxxxxxxxxxxx goods xxx included xx the xxx measurement xxxx the xxxxx of xxxxxxxx counting xxxx crop xx Thus xxx value xx steel xxxxx is xx intermediate xxxx in xxx production xx automobiles xxxxx product xx not xxxxxxxx in xxx price xx Automobile xxx purchase xx sale xx stocks xxx bonds xx not xxxxxxxx in xxx Measurement xxx reason xxxxxx the xxxx being xxxx such xxxxxxxxxxxx only xxxxxx the xxxxxxxx of xxxxxxxxx of xxxxxxxx assets xxx there xx not xxxxx value xxxxxxxx in xxxxx of xxxxxxxxxx Used xxxxxxxxx was xxxxxxxxxxxx in xxx previous xxxxx and xxx already xxxx accounted xxx GDP xxxxxxxxxxx in xxx year xx which xx was xxxxxxxxxxxx Thus xx again xxx purchase xx sale xx used xxxxxxxxx is xxxx for xxx Measurement xx would xxxxxx in xxxxxxxx error xxx thus xxxx present x true xxxxxxx Ans xxxxxxxxxx that xx being xxxxxxxx will xx sold xxxxxx Selling xxxxx Quantity xxxx i x Revenue xxxxxxx is xxxxx into xxxxxxxx Income xx Shareholders xxxxxxxxxxxxxxx of xxxxxx who xxxxxxx loan xxxxxxx income xx employees xxx work xxxxxxxxx amp 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 xxx T xxxx would xx included xx the xxx measurement xxx the xxxxxx who xx receiving xxx interest xxx not xx GDP xxxxxxxxxxx by xxxxx added xx AT xxx amp x because xxxxxxxx is xxxxxxxxxxx for xx amp xxx T xx The xxxxxx Security xxxxxxxx received xx a xxxxxxx person xxxx be x part xx GDP xxxxxxxxxxx under xxxxxx aggregation xxxxxx as xx is x transfer xxxxxxx and xxx output xx created xxx The xxxx will xxx be xxxxxxxx in xxx calculation xx not xxxxxx or xxxxxx has xxxx derived xx the xxxx IV xxx income xx a xxxxxxx from xxx dental xxxxxxxx provided xxxx be xxxxxxxx in xxx Calculation x The xxxxxxx allowance xx not x income xx value xxxxxxxx for xxx college xxxxx student xxx the xxxx has xxxxxxx been xxxxxxxxx for xx the xxxxxxx income xxxx this xxxxxxxxx should xxx be xxxxxxxx in xxx Calculation xx Money xxxxxxxx by xxxx by xxxxxxx the xxxxx new xxxxx automobile xx Kim xxxxxx not xx included xx GDP xxxxxxxxxxx as xxx same xxx been xxxx when xxx automobile xxx manufactured xxx The xxxxxxxxxxx and xxxx of xxx college xxxx books xxxxxx be xxxxxxxx in xxx calculation xxxx Since xxxxx is xx reduction xx pay xxxxx the xxxxxxxx of xxxxxxx will xxx result xx any xxxxxxx in xxx calculation xx A xxxxxxx increase xx inventory xxxx be xxxxxxxx in xxx Calculation xx the xxxxxx has xxxx manufactured xx increase xxx inventory x The xxxxxxxx of xxxxxx of xxxxxx common xxxxx will xxx be xxxxxxxx in xxx calculation xx no xxxxx shares xxx being xxxxxx There xx only xxxxxxxx of xxxxxxxxx happening xxx a xxx expenditures xxxxxxxx GDP xxxxxxxx consumption xxxxxxxxxxxx Net xxxxxxx domestic xxxxxxxxxx Consumption xx fixed xxxxxxx depreciation xxx sum xx these xxx components xxxxxxxx gross xxxxxxxxxx Government xxxxxxxxx net xxxxxxx The xxxxxx approach xxx compensation xx employees xxxxx Interest xxxxxxxxxx amp 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 rsquo x price xxxxx remember xx convert xxx price xxxxx back xxxx decimal xxxx Nominal xxx in xx price x output xxx price xxxxx for xx by xxxxxxxxxx base xxxx Thus xxxx GDP xxxxxxx output xxx price xxxxx scaled xx decimal xxxx Nominal xxx in xx price x output xxx price xxxxx for xx found xxxxx Thus xxxx GDP xxxxxxx output xxx price xxxxx scaled xx decimal xxxx Ans xxxx GDP xxx be xxxxx by xxxxxxxx nominal xxx by xxx price xxxxx decimal xxxx for xxxx year xx the xxxxx index xx below xxx inflating xxx and xx the xxxxx level xx above xxx are xxxxxxxxx GDP xxxx GDP xxxxxxxxx Real xxx inflating xxxx GDP xxxxxxxxx Real xxx inflating xxxx GDP xxxxxxxxxMore Articles From Economics
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