Quick Quiz:

1)c 2) d 3)b 4)c 5)b 6)d 7)c 8)a 9)a 10)b 11)c 12)c
Questions for review:
1) Because every transaction has two sides: a buyer and a seller. Every single
buyer’s expenditure is another seller’s income.
2) The production of a luxury car will contribute more to the GDP than the
production of an economy car. The GDP is the calculation of the market
value of the production (products and services) that was finished in a quarter
or a year in a specific economy. Comparing the market value of the products
described, the market value of a luxury car will be higher than the market
value of an economy car. As a consequence, the GDP will experience a
greater increase if a luxury car was produced rather than an economy car.
3) The total contribution of the transactions to GDP is 3$
4) The sale of Peggy's album collection doesn't affect GDP as nothing has been
newly produced in the economy. Resale of old products is not accounted
into GDP
5) The four components of gross domestic product are personal consumption,
business investment, government spending, and net exports. For example:
- Good, service
- Software, capital goods
- Military spending
- Rice exports
6) Economists use real GDP rather than nominal GDP to gauge economic well-
being because real GDP is not affected by changes in prices, so it reflects
only changes in the amounts being produced. You cannot determine if a rise
in nominal GDP has been caused by increased production or higher prices.
7) Nominal GDP 2020 = 2. 100=200$
Real GDP2020 = 2.100=200$
Nominal GDP 2021= 3.200= 600$
Real GDP 2021= 2. 200=400$
GDP deflator 2020= 100
GDP deflator 2021 = 150
Nominal GDP rice 150% Real GDP rice 200% GDP deflator rice 150%
8) It is desirable for a country to have a large GDP because people could enjoy
more goods and services. For example law restrict pollution cause GDP
would be higher but we will worse off.
 Problems and applications:

1) a)Consumption increases because refrigerator is good purchased by

household
b) Investment increases because house is a investment
c) Investment decreases but consumption increase so GDP unchanged
d) Consumption increases because cutting hair is purchased by her
e) Investment decreases but consumption increase so GDP unchanged
f) Investment increase
g) Government purchase increase because the government spend money
to provide a good to the public
h) Unchanged because your grandmother don’t contribute anything with
this money
i) Consumption increase because your farther buy but net exports
decrease because the bottle is imported
j) Investment increase because new structure is build
2)
Year Real GDP Nominal GDP GDP deflator
1970 3000 1200 40
1980 5000 3000 60
1990 6000 6000 100
2000 8000 8000 100
2010 7500 15000 200
2020 10000 30000 300
2030 20000 50000 250

3) It doesn’t include spending on transfer payment because transfer

payment don’t have any effect and affect economy or create product so
transfer payment don’t affect GDP
4) GDP is supposed to measure the value of production in an economy. By
counting the sale of used goods, you end up double counting goods. Goods that are
resold often thus appear to add more value that they really do.
This means only final and new goods should be counted in GDP. Any attempt to
include unaltered resold goods would result in a distorted metric which shows
more value in a society that truly exists.
5)
a) Nominal GDP:
2020: (1. 100).(2.50)=200$
2021: (1.200).(2.100)=400$ (rise 100%)
2022: (2.200).(4.100)=800$ (rise 100%)
Real GDP ( base year 2020):
2020: (1. 100).(2.50)=200$
2021: (1. 200).(2.100)=400$ (rise 100%)
2022: (1. 200).(2.100)=400$ ( rise 0%)
GDP deflator:
2020: (200/200).100=100
2021: (400/400).100=100 ( rise 0%)
2022: (400/800).100=200 (rise 100%)
b) Percentage change in nominal GDP 2021: (( 400-200)/200).100=100%
Percentage change in nominal GDP 2022: ((800-400)/400).100=100%
Percentage change in real GDP 2021: ((400-200)/200).100=100%
Percentage change in real GDP 2022: ((400-400)/400).100=0%
Percentage change in GDP deflator 2021: ((100-100)/100).100=0%
Percentage change in GDP deflator 2022: ((200-100)/100).100=100%
b) Price don’t change from 2020 to 2021. Thus, the percentage change in GDP
deflator is zero. Likewise, output levels did not change from 2021 to 2022. This
mean that the percentage change in real GDP is zero
c) Economic well being rose more in 2021 than 2022 because real GDP rose in
2021 but not in 2020. In 2021 real GDP rose but prices did not. In 2022 real GDP
did not rise but price did
6)
a) Nominal GDP:
Year 1: 3.4=12$
Year 2: 4.5=20$
Year 3: 5.6=30$
b) Real GDP:
Year 1:3.4=12$
Year 2:4.4=16$
Year 3:4.5=20$
c) GDP deflator:
Year1: (12/12).100=100
Year2 : (20/16).100=125
Year3 : (30/20).100=150
d) Percentage grow rate real GDP from year 2 to year 3: ((20-16)/16).100=25%
e) Inflation rate in year 3: ((150-125)/125).100=20
f) Because real GDP don’t include price so we can answer d) by quantity of year 2,
year 3: 100. ((5-4).4)=25%
We also can calculate e) without answer b), c) because inflation rate depend on
price of year 2,3: 100. ((6-5)/5)=20%
7)
a) The growth rate of nominal GDP over 20 years is calculated as follow:
Growth rate =((20501/9063)^1/20)-1).100= 4,1
b)The growth rate of the GDP deflator between 1998 to 2018
((110,4-75,3)/75,3).100=46,6
c) Real GDP 1998=(100.9063)/75,3=12035,8
d) Real GDP 2018= (100.20501)/110,4=18569,7
e)The growth rate of Real GDP=100.((18569,7-12035,8)/12035,8)=54,3
f) The growth rate of nominal GDP is higher than the growth rate of real GDP
because during 20 year price of product change a lot more than quantity of product
so the nominal GDP is higher than real GDP.
8)
The increase in real GDP in the second quarter reflected increases in personal
consumption expenditures (PCE), nonresidential fixed investment, exports, and
state and local government spending that were partly offset by decreases in private
inventory investment, residential fixed investment, and federal government
spending and imports, which are a subtraction in the calculation of GDP, increased.
9)
a) GDP in this economy is 180$ Because GDP is the total amount that households
in that country spend on final goods so it just include price of bread
b) Because all intermidate product bought are used to turn into other product so the
new products always has higher price than the previous products.
Value added of wheat is 100$
Value added of flour is 50$
Value added of bread is 30$
c) Total value added of three products is 180$ and it equal economy’s GDP.
Yes, this is a way to caculate GDP by value added method
10)
Really it would lead to the discrepency in the estimation of GDP and wrong
impression would be formed about the health of economy. generally income which
is not in formal sector is calculated based on samples and included in GDP. but
service provided by housewife etc at home are not recorded in GDP. Thus,
developing countries such as India has such economic activities which are not
included in GDP for want of data.
11)
a)That the participation of woman in US labor force has increase dramatically
since 1970 helps GDP rise because there are more production created.
b) If a measure of well being include time spent working in home and taking
leisure , the change in measure of well being is opposite with the change in GDP
because if GDP is higher and higher, time spent working in home is higher and
higher and taking leisure is less and less.
c) Raising a family and taking care child are issues and they can be constructed to
become aspects of a measure of well being because they can help we caculate
clearly well being.
12)
a. The money collected from the haircut is the gross domestic product.
Gross domestic product GDP = $400
b. Net national product is the difference between the contribution towards the GDP
and depreciation.
NNP = contribution to GDP – Depriciation
= $400 - $50
= $350
Net national product = $350
c. The national income includes the total income earned by the residents of the
country. The contribution to national income is same as the NNP.
National income = $350
d. Personal income is the difference between national income and retained
earnings.
Personal income = National income – Retained earnings
= $350 - $100 - $30
= $220
Personal income = $220
e. Disposable personal income is the difference between the personal income and
personal tax.
Disposable personal income = Personal income – Personal tax
= $220 - $70
= $150
Disposable personal income $150
Chapter 24:
1. If we use CPI inflation calculator, $100 in January 2002, the year I was born,
was the same as $147.70 in January 2021.
To buy a similar amount of goods and services, it would cost:
T= 100 x 147.70/100 = $147.70
I find that $100 of goods and services for baby is equivalent to $147.70 of
that in 2021
2.