exercises chapter 2 measuring national output and national income

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Exercises Chapter 2 Measuring National Output and National Income

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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

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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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 = 180GDP = 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 + subsidiesNational 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 taxesDPI = 760 – 90 = 670

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Table 3

Item Million $

Net investment 1785 Corporate profits taxes 0Export 960 Undistributed profits 1550Import 350 Social security payments to

the households 340

Net payments of factor income to the rest of the world

- 890 Depreciation 775

Disposable personal income 3250 Personal income 4235Saving 900 Indirect taxes 12Government purchases 3370Production subsidies 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 = 2350Gross investment = net investment + depreciation = 1785 + 775 = 2560GDP = 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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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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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 Prices = p Nominal GDP Y1

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

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

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 Prices = p Real GDP12

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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Real GDP 13 = (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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Real GDP 11 = (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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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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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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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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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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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 ) 100x

= ( 150 / 135 ) x 100 = 111.1

( Nominal GDP in Y1 / Real GDP22 ) x 100 (P1.q1 / P2.q1 ) 100x

( 110 / 150 ) x 100 = 73.3

In this case the Inflation rate between year 1 and 2 = 111.1 11.1 = 100 ـــ %

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Calculating GDP Deflator and Inflation

( 110 / 110 ) x 100 = 100

( Nominal GDP in Y2 / Real GDP 22) x 100 (P2.q2 / P2.q2 ) 100x

( 150 / 150 ) x 100 = 100

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Calculate GDP Deflator and Inflation in the following cases

= ( 250 / 178 ) x 100 = 140.4

( Nominal GDP in Y1 / Real GDP 31 ) x 100 (P1.q1 / P3.q1 ) 100x

( 250 / 160 ) x 100 = 156.2

In this case the Inflation rate between year 1 and 3 = 140.4 40.4 = 100 ـــ %

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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

exercises chapter 2 measuring national output and national income

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