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Tutorial 2

This document is a tutorial on measuring a nation's income, focusing on key macroeconomic terms and concepts such as GDP, inflation, and total income. It includes short-answer questions and practice problems to help understand the components of GDP and its implications for economic well-being. Additionally, multiple-choice questions are provided to test knowledge on related topics.

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47 views4 pages

Tutorial 2

This document is a tutorial on measuring a nation's income, focusing on key macroeconomic terms and concepts such as GDP, inflation, and total income. It includes short-answer questions and practice problems to help understand the components of GDP and its implications for economic well-being. Additionally, multiple-choice questions are provided to test knowledge on related topics.

Uploaded by

Lyn
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Macroeconomics Tutorial 2

Measuring a Nation’s Income

I. Terms

1. Inflation
2. Macroeconomics
3. Total income
4. Total expenditure
5. Gross domestic products.
6. Gross national products
7. Government purchases
8. Net exports
9. Real GDP
10. Nominal GDP
11. GDP deflator

II. Short-Answer Questions

1. Which contributes more to GDP—the production of an economy car or the


production of a luxury car? Why?
2. A farmer sells wheat to a baker for $2. The baker uses the wheat to make
bread, which is sold for $3. What is the total contribution of these transactions
to GDP?
3. Many years ago, Peggy paid $500 to put together a record collection. Today,
she sold her albums at a garage sale for $100. How does this sale affect current
GDP?
4. List the four components of GDP. Give an example of each.
5. Why do economists use real GDP rather than nominal GDP to gauge
economic well-being?
6. Why is it desirable for a country to have a large GDP? Give an example of
something that would raise GDP and yet be undesirable.

III. Practice problems

1. What components of GDP of US (if any) would each of the following


transactions affect? Explain.
a. A family buys a new refrigerator.
b. Aunt Jane buys a new house.
c. California repaves Highway 101.
d. Honda expands its factory in Marysville, Ohio.

2. The government purchases component of GDP does not include spending on


transfer payments such as Social Security. Thinking about the definition of
GDP, explain why transfer payments are excluded.
3. As the chapter states, GDP does not include the value of used goods that are
resold. Why would including such transactions make GDP a less informative
measure of economic well-being?
4. Below are some data from the land of milk and honey.
Price of Quantity of Price of
Quantity of
Year Milk Milk Honey
Honey
2010 $1 100 quarts $2 50
quarts
2011 $1 200 $2 100
2012 $2 200 $4 100
a. Compute nominal GDP, real GDP, and the GDP deflator for each year,
using 2010 as the base year.
b. Compute the percentage change in nominal GDP, real GDP, and the
GDP deflator in 2011 and 2012 from the preceding year. For each year,
identify the variable that does not change. Explain in words why your
answer makes sense.
c. Did economic well-being rise more in 2011 or 2012? Explain.
5. Consider an economy that produces only chocolate bars.
In year 1, the quantity produced is 3 bars and the price is $4.
In year 2, the quantity produced is 4 bars and the price is $5.
In year 3, the quantity produced is 5 bars and the price is $6.
Year 1 is the base year.
a. What is nominal GDP for each of these three years?
b. What is real GDP for each of these years?
c. What is the GDP deflator for each of these years?
d. What is the percentage growth rate of real GDP from year 2 to year 3?
e. What is the inflation rate as measured by the GDP deflator from year 2
to year 3?
6. The participation of women in the U.S. labor force has risen dramatically since
1970.
a. How do you think this rise affected GDP?
b. Now imagine a measure of well-being that includes time spent working
in the home and taking leisure. How would the change in this measure
of well-being compare to the change in GDP?
c. Can you think of other aspects of well-being that are associated with
the rise in women’s labor-force participation? Would it be practical to
construct a measure of well-being that includes these aspects?

IV. Multiple- Choice Questions

1. An example of transfer payment is


a. Wages.
b. Profit.
c. Rent.
d. Government purchases.
e. Unemployment benefits.

2. The value of plant and equipment worn out in the process of manufacturing goods
and services is defined by
a. consumption
b. Depreciation.
c. Net national product.
d. Investment.
e. Intermediate production.

3. Which of the following would be excluded from 2009 GDP? The sale of
a. A 2009 Honda made in Tennessee.
b. A haircut.
c. A realtor’s services.
d. A home built in 2008 and first sold in 2009.
e. All of the above should be counted in 2009 GDP.

4. Gross domestic product can be measured as the sum of


a. Consumption, investment, government purchases, and net exports.
b. Consumption, transfer payment, wages, and profits.
c. Investment, wages, profits, and intermediate production.
d. Final goods and services, intermediate goods, transfer payment, and rent.
e. Net national product, gross national product, and disposable personal income.

5. U.S gross domestic product (in contrast to gross national product) measures the
production and income of
a. Americans and their factories no matter where they are located in the world
b. People and factories located within the borders of the United States.
c. The domestic service sector only.
d. The domestic manufacturing sector only.
e. None of the above.

6. Gross domestic product is the sum of the market value of the


a. Intermediate goods.
b. Manufactured goods.
c. Normal goods and services.
d. Inferior goods and service.
e. Final goods and services.

7. If nominal GDP in 2010 exceeds nominal GDP in 2009, then the production of
output must have
a. Risen.
b. Fallen.
c. Stayed the same.
d. Risen or fallen because there is not enough information to determine what
happened to real output.

8. If a cobbler buys leather for $100 and thread for $50 and uses them to produce and
sell $500 worth of shoes to consumers, the contribution to GDP is
a. $50.
b. $100.
c. $500.
d. $600.
e. $650.

9. GDP would include which of the following?


a. housework
b. illegal drug sales
c. intermediate sales
d. consulting services
e. the value of taking a day off from work

10. Real GDP is measured in ….. Prices while nominal GDP is measured in …..
Prices.
a. current year; base year
b. base year; current year
c. intermediate; final
d. domestic; foreign
e. foreign; domestic

11. If U.S. GDP exceeds U.S. GNP, then


a. Foreigners are producing more in the United States than Americans are
producing in foreign countries.
b. Americans are producing more in foreign countries than foreigners are
producing in the United States.
c. Real GDP exceeds nominal GDP.
d. Real GNP exceeds nominal GNP.
e. Intermediate production exceeds final production.

12. How is your purchase of a $40,000 BMW automobile that was produced entirely
in Germany recorded in the U.S. GDP accounts?
a. Investment increases by $40,000 and net exports increase by $40,000.
b. Consumption increases by $40,000 and net exports decrease by $40,000.
c. Net exports decrease by $40,000.
d. Net exports increase by $40,000.
e. There is no impact because this transaction does not involve domestic
production.

13. If your grandparents buy a new retirement home, this transaction would affect
a. Consumption.
b. Investment.
c. Government purchases.
d. Net exports.
e. None of the above.

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