Macro HW Problem Set 1

Indicate whether each of the following transactions represents the purchase of a final good

1. The purchase of tires from Bridgestone tire company by an automobile manufacturer. Is not the purchase of a final good 2. The purchase of an aircraft carrier by the federal government. Is the purchase of a final good 3. The purchase of French wine by a U.S. consumer. Is the purchase of a final good 4. The purchase of a new plane by American Airlines. Is the purchase of a final good

Use the data in the following table to calculate the GDP deflator for each year ​(values are in billions of​ dollars, enter your response rounded to two decimal places​ -- remember to multiply by 100​). ​Source: Federal Reserve Bank of St. Louis​ (FRED) Year: 2018 Nominal GDP: $20533 Real GDP: $18609 GDP Deflator: 110.34 Year: 2019 Nominal GDP: $21381 Real GDP: $19036 GDP Deflator: 112.32 Year: 2020 Nominal GDP: $21060 Real GDP: $18509 GDP Deflator: 113.78 Year: 2021 Nominal GDP: $23315 Real GDP: $19610 GDP Deflator: 118.89 Year: 2022 Nominal GDP: $25463 Real GDP: $20014 GDP Deflator: 127.23

2021 to 2022

How does real GDP deal with the problem inflation causes with nominal​ GDP?

All of the above.

The following table gives nominal and real GDP for an economy for two years. Nominal GDP Year 1: 1540 Year 2: 1960 Real GDP Year 1: 1400 Year 2: 1680

Based on the​ table, in Year​ 2, the value of the GDP deflator is 116.7 ​ (Round your answer to one decimal place​.) The inflation rate between Year 1 and Year 2 is 6.1%. ​ (Round your answer to one decimal place​.)

Indicate whether each of the following is a final​ good, an intermediate​ good, or neither.

Coffee beans purchased by a coffee shop: Intermediate good One share of Google stock: Neither A new​ pick-up truck purchased by a consumer: Final good A new home purchased by a family: Final good

Indicate whether you agree or disagree with the following statements. ​"If nominal GDP is less than real​ GDP, then the price level must have fallen during the​ year." ​"Whenever real GDP​ declines, nominal GDP must also​ decline." "If a recession is so severe that the price level​ declines, then we know that both real GDP and nominal GDP must​ decline." ​"If real GDP stayed the same while nominal GDP declined between 2019 and​ 2020, then the GDP deflator must also have​ declined."

Disagree. Nominal GDP is less than real GDP if the current price level is less than the base year price level. A fall in the price level during the year is neither necessary nor sufficient to cause nominal GDP to be less than real GDP. Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices rise. Agree. If both output and prices are​ falling, then both real GDP and nominal GDP will fall. Agree. If nominal GDP declined between 2019 and​ 2020, then the GDP deflator must also have declined.

Suppose a house is built and sold in the year 2010. If the house is resold in the year​ 2022, is the value of the house included in Gross Domestic Product ​(GDP) for​ 2022?

No. GDP for 2022 includes only production that occurs during 2022.

The Great Depression was the worst economic disaster in U.S. history in terms of declines in real GDP and increases in the unemployment rate. Use the data in the following table to calculate the percentage decline in real GDP between 1929 and 1933. Year: 1929 Nominal GDP (Billions of Dollars): $104.6 GDP Price Deflator (2012 = 100): 9.4 Year: 1933 Nominal GDP (Billions of Dollars): $57.2 GDP Price Deflator (2012 = 100): 7

Real GDP changed by negative -26.6% over the 4 year period between 1929 and 1933. ​(Enter a percentage value rounded to one decimal place. Include a minus sign if necessary​.)

Consider the following simple economy that produces only three​ goods: 2009​ (Base Year) Product: Denim pants Quantity: 80 Price: $40 Product: Wine Quantity: 90 Price: $11 Product: Textbooks Quantity: 15 Price: $90 2017 Product: Demin pants Quantity: 100 Price: $50 Product: Wine Quantity: 80 Price: $10 Product: Textbooks Quantity: 20 Price: $100

Real GDP in 2017 equals ​$6680.

Suppose that a simple economy produces only the following four goods and​ services: shoes,​ hamburgers, shirts, and cotton. ​ Further, assume that all of the cotton is used to produce shirts. Use the information in the following table to calculate Nominal Gross Domestic Product ​(Nominal GDP) for 2022. PRODUCTION AND PRICE STATISTICS FOR 2022 Product: Shoes Quantity: 150 Price: $70 Product: Hamburgers Quantity: 125 Price: $3 Product: Shirts Quantity: 75 Price: $30 Product: Cotton Quantity: 2000 Price: $0.80

The Nominal GDP for the year 2022 is $13125

Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the​ next?

When nominal GDP increases from year to​ year, the increase is due partly to changes in prices and partly to changes in quantities.

Which equation represents the relationship between GDP and the four major expenditure​ components?

Y=C+I+G+NX

Which of the following equations sums up the components of Gross Domestic Product​ (GDP)?

Y=C+I+G+NX

Would the services of a real estate agent who helped sell​ (or helped​ buy) the house be included in GDP for​ 2022?

Yes. GDP for 2022 includes the market value of final goods and services. This includes real estate services.

Indicate which component of GDP will be affected by each of the following transactions involving General Motors.

a. You purchase a new Chevrolet Silverado pickup from a GM dealer. Consumption Expenditure b. You purchase a 2019​ (preowned) Chevrolet Silverado from a friend. Not included in GDP calculation c. GM purchases door handles for the Silverado from an auto parts manufacturer in Indiana. Not included in GDP calculation d. GM produces​ 1,000 Silverados in a factory in​ Flint, Michigan, and ships them to a car dealer in​ Shanghai, China. Net Export Expenditure e. GM purchases new machine tools to use in its Flint factory. Investment Expenditure f. The state of Michigan builds a new highway to help improve access to​ GM's Flint plant. Government Expenditure

A breakdown of the four components of GDP shows that

consumption is by far the largest expenditure​ category, and that consumer spending on services far exceeds consumer spending on goods.

If prices rise over​ time, then real GDP will be

larger than nominal GDP in years before the base year.

In calculating​ GDP, which levels of government spending are included in government​ purchases?

spending by​ federal, state, and local governments

Potential GDP is Potential GDP

the level of GDP produced when all factors of production are utilized at​ "normal" rates. grows over time

Which of the following is included in the​ economist's definition of​ investment?

the purchase of new​ machines, factories, or houses

In​ 2013, the population of Great Britain was around 64 million. According to the World​ Bank, the​ country's GDP​ (expressed in US​ dollars) in 2013 was about​ $2.5 trillion. This implies that​ Britain's 2013 per capita GDP was about

​$39,000

What are the four major components of expenditures in​ GDP?

​Consumption, Investment, Government​ Purchases, and Net Exports

An article in the Wall Street Journal referred to​ "gross domestic product—the value of all goods and services produced in the​ U.S." ​Source: Harriet​ Tory, "U.S. Economy Grew at​ 3.2% Rate in​ First," Wall Street Journal​, April​ 26, 2019. Briefly explain whether you agree with this definition of GDP.

​Disagree, because GDP measures the value of all final goods and services produced in an​ economy, not all the goods and services produced.

If the U.S. Bureau of Economic Analysis​ (BEA) added up the values of every good and service sold during the​ year, would the total be larger or smaller than measured gross domestic product​ (GDP)?

​Larger: The value of all goods and services sold would include intermediate goods.