exercises chapter 2 measuring national output and national income
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Exercises Chapter 2 Measuring National Output and National Income. 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 gross domestic product gross national product net national product - PowerPoint PPT PresentationTRANSCRIPT
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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 1 of 31
Exercises Chapter 2 Measuring National Output and National Income
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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 2 of 31
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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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 3 of 31
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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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 4 of 31
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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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 5 of 31
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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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 6 of 31
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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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 7 of 31
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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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 8 of 31
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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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 9 of 31
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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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 10 of 31
Chapter 2 - Discussion
Table 1
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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 11 of 38
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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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 12 of 38
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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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 13 of 31
Chapter 2 - Discussion
Table 2.
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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 14 of 38
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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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 15 of 38
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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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 16 of 38
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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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 17 of 38
Table 3
Item Million $
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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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 18 of 38
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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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 19 of 38
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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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 20 of 31
Chapter 2 - Discussion
Refer to the information provided in Table 4 below to answer the questions that follow.
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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 21 of 38
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
110
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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 22 of 38
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
Nominal GDP year 2 = Sum (P2 x q2)
Production = q Prices = p Nominal GDP Y2
Year 1 Year 2 Year 3 Year 1 Year 2 Year 3 P2 x q2
Good x 50 75 100 1 1 1.2 75
Good y 100 100 130 0.6 0.75 1 75
150
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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 23 of 38
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
Nominal GDP year 3 = Sum (P3 x q3)
Production = q Prices = p Nominal GDP Y2
Year 1 Year 2 Year 3 Year 1 Year 2 Year 3 P2 x q2
Good x 50 75 100 1 1 1.2 120
Good y 100 100 130 0.6 0.75 1 130
250
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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 24 of 38
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
Year 1 Year 2 Year 3 Year 1 Year 2 Year 3 P1 x q2
Good x 50 75 100 1 1 1.2 75
Good y 100 100 130 0.6 0.75 1 60
135
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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 25 of 38
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 3 is
Real GDP 13 = (P1 x q3)
Production = q Prices = p Real GDP13
Year 1 Year 2 Year 3 Year 1 Year 2 Year 3 P1 x q3
Good x 50 75 100 1 1 1.2 100
Good y 100 100 130 0.6 0.75 1 78
178
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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 26 of 38
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 1 is
Real GDP 11 = (P1 x q1)
Production = q Prices = p Real GDP11
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
110
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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 27 of 38
Refer to Table 4. Assume that this economy produces only two goods Good X and Good Y. If year 2 is the base year, the value for this economy's real GDP in year 1 is
Real GDP21 = (P2 x q1)
Production = q Prices = p Real GDP21
Year 1 Year 2 Year 3 Year 1 Year 2 Year 3 P2 x q1
Good x 50 75 100 1 1 1.2 50
Good y 100 100 130 0.6 0.75 1 75
125
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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 28 of 38
Refer to Table 4. Assume that this economy produces only two goods Good X and Good Y. If year 2 is the base year, the value for this economy's real GDP in year 2 is
Real GDP22 = (P2 x q2)
Production = q Prices = p Real GDP22
Year 1 Year 2 Year 3 Year 1 Year 2 Year 3 P2 x q2
Good x 50 75 100 1 1 1.2 75
Good y 100 100 130 0.6 0.75 1 75
150
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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 29 of 38
Refer to Table 4. Assume that this economy produces only two goods Good X and Good Y. If year 2 is the base year, the value for this economy's real GDP in year 3 is
Real GDP23 = (P2 x q3)
Production = q Prices = p Real GDP23
Year 1 Year 2 Year 3 Year 1 Year 2 Year 3 P2 x q3
Good x 50 75 100 1 1 1.2 100
Good y 100 100 130 0.6 0.75 1 97.5
197.5
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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 30 of 38
Refer to Table 4. Assume that this economy produces only two goods Good X and Good Y. If year 3 is the base year, the value for this economy's real GDP in year 1 is
Real GDP31 = (P3 x q1)
Production = q Prices = p Real GDP31
Year 1 Year 2 Year 3 Year 1 Year 2 Year 3 P3 x q1
Good x 50 75 100 1 1 1.2 60
Good y 100 100 130 0.6 0.75 1 100
160
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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 31 of 38
Refer to Table 4. Assume that this economy produces only two goods Good X and Good Y. If year 3 is the base year, the value for this economy's real GDP in year 2 is
Real GDP32 = (P3 x q2)
Production = q Prices = p Real GDP32
Year 1 Year 2 Year 3 Year 1 Year 2 Year 3 P3 x q2
Good x 50 75 100 1 1 1.2 90
Good y 100 100 130 0.6 0.75 1 100
190
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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 32 of 38
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
If year 2 is the base year, the value of GDP deflator in year 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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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 33 of 38
Calculating GDP Deflator and Inflation
If year 1 is the base year, the value of GDP deflator in year 1
( Nominal GDP in Y1 / Real GDP11) x 100 (P1.q1 / P1.q1 ) 100x
( 110 / 110 ) x 100 = 100
If year 2 is the base year, the value of GDP deflator in year 2
( Nominal GDP in Y2 / Real GDP 22) x 100 (P2.q2 / P2.q2 ) 100x
( 150 / 150 ) x 100 = 100
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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 34 of 38
Calculate GDP Deflator and Inflation in the following cases
If year 1 is the base year, the value of GDP deflator in year 3
( Nominal GDP in Y3 / Real GDP13) x 100 (P3.q3 / P1.q3 ) 100x
= ( 250 / 178 ) x 100 = 140.4
If year 3 is the base year, the value of GDP deflator in year 1
( 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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© 2004 Prentice Hall Business Publishing© 2004 Prentice Hall Business Publishing Principles of Economics, 7/ePrinciples of Economics, 7/e Karl Case, Ray FairKarl Case, Ray Fair 35 of 31
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