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Practice questions for macroeconomics final.
Typology: Exercises
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Q1. The firm that printed this textbook bought the paper from XYZ Paper Mills. Was this purchase of paper part of GDP? If not, how does the value of the paper get counted in GDP?
The paper is an intermediate good and so it is not (directly) included in GDP. The value of the paper is included in GDP as part of the value of the textbooks that the company produced using the paper. Use the figure above and answer the following questions: Q2. During 2008, in an economy
Name the flows and calculate the value of a. Aggregate income. b. GDP
Flow A is aggregate income; Flow B is consumption expenditure; Flow C is government expenditure; Flow D is investment; Flow E is net exports. a. Aggregate income. Aggregate income is $1.33 trillion. Aggregate income equals aggregate expenditure, which is the sum of consumption expenditure (Flow B ), investment (Flow D ), government expenditure (Flow C ), and net exports (Flow E ). Therefore aggregate expenditure equals $900 billion plus $300 billion plus $200 billion plus −$70 billion, which is $1.33 trillion. Therefore aggregate income also equals $1.33 trillion. b. GDP. GDP is $1.33 trillion. GDP equals aggregate income, which from part a is $1.33 trillion. Q. 3 : During 2009, flow A was $1,300 billion, flow B was $910 billion, flow D was $330 billion, and flow E was – $80 billion. Calculate the 2009 values of a. GDP. b. Government expenditure.
a. GDP. GDP is $1,300 billion. GDP equals aggregate income. Flow A is aggregate income, so aggregate income— and hence GDP—is $1,300 billion, b. Government expenditure. Government expenditure is $140 billion. Aggregate expenditure equals GDP, which from part (a) is $1,300 billion. Aggregate expenditure is the sum of consumption expenditure (Flow B ), investment (Flow D ), government expenditure (Flow C ), and net exports (Flow E ). Therefore government expenditure equals aggregate expenditure minus consumption expenditure minus investment minus net exports. Government expenditure equals $1,300 billion minus $910 billion minus $330 billion minus −$80 billion, which is $140 billion.
Answer: In 2010, nominal GDP is $5,600. In 2011, nominal GDP is $6,100. Nominal GDP in 2010 is equal to total expenditure on the goods and services produced by Tropical Republic in 2010. Expenditure on Tropical Republic on bananas is 800 bunches of bananas at $2 a bunch, which is $1,600. Expenditure on coconuts is 400 bunches at $10 a bunch, which is $4,000. Total expenditure is $5,600, so nominal GDP in 2008 is $5,600. Nominal GDP in 2011is equal to total expenditure on the goods and services produced by Tropical Republic in 2011. Expenditure on Tropical Republic on bananas is 900 bunches of bananas at $4 a bunch, which is $3,600. Expenditure on coconuts is 500 bunches at $5 a bunch, which is $2,500. Total expenditure is $6,100, so nominal GDP in 2011is $6,100. b) Calculate real GDP in 2011 expressed in base-year prices. Answer: Real GDP in 2011using base-year prices is $6,800. The base-year prices method calculates the market value of the 2011 quantities at the base-year prices of 2010. To value the 2011output at 2010 prices, real expenditure on Tropical Republic on bananas is 900 bunches at $2 a bunch, which is $1,800, and real expenditure on coconuts is 500 bunches at $10 a bunch, which is $5,000. Adding these two expenditures shows that real GDP in 2011using the base-year prices method is $6,800. Q 6. Use the table to work out in which year Canada’s standard of living (i) increases and (ii) decreases. Explain your answer. Year Real GDP Population 2007 $1, billion 3 2.9 million 2008 $1, billion 33.3 million 2009 $1, billion 33.7 million 2010 $1, billion 34.1 million Answer: The standard of living is measured by real GDP per person. The standard of living decreased in 2008 (slightly) and 2009 because real GDP per person decreased. The standard of living increased in 2010 because real GDP per person increased.
Use the figure above to answer the following questions. Q 7. In 2009, flow A was $1,000 billion, flow C was $250 billion, flow B was $650 billion, and flow E was $50 billion. Calculate investment. Answer: Investment is $50 billion. Aggregate expenditure equals aggregate income, which is flow A, $1,000 billion. Aggregate expenditure is the sum of consumption expenditure (Flow B ), investment (Flow D ), government expenditure (Flow C ), and net exports (Flow E ). Therefore investment equals aggregate expenditure minus consumption expenditure minus government expenditure on goods and services minus net exports. Investment equals $1,000 billion minus $650 billion minus $250 billion minus $ billion, which is $50 billion. Q 8. In 2010, flow D was $2 trillion, flow E was – $1 trillion, flow A was $10 trillion, and flow C was $ trillion. Calculate consumption expenditure. Answer: Consumption expenditure is $5 trillion. Aggregate expenditure equals aggregate income, which is flow A, $10 trillion. Aggregate expenditure is the sum of consumption expenditure (Flow B ), investment (Flow D ), government expenditure (Flow C ), and net exports (Flow E ). Therefore consumption expenditure equals aggregate expenditure minus investment minus government expenditure on goods and services minus net exports. Consumption expenditure equals $10 trillion minus $2 trillion minus $4 trillion minus −$1 trillion, which is $5 trillion.
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