Quiz 5 (GDP, Investment, Inflation)

For the economy described in the table below, what do net exports equal? GDP Expenditures Consumption: $840 Investment: $650 Government Purchases: $520 Exports: $380 GDP : $1950

-60 you first have to calculate import spending. To do this you have to add cosnsumption, investment, government purchases, and export revenues and then subtract GDP. 2390 - 1950 = 440 Net exports is equal to exports minus imports so: 380 - 440 = -60

Suppose that Glitter Gulch, a gold mining firm, increased its sales revenues on newly mined gold from $25 million to $50 million between one year and the next. Assuming that the price of gold increased by 100 percent over the same period, by what numerical amount did Glitter Gulch's real output change? If the price of gold had not changed, what would have been the change in Glitter Gulch's real output?

0, since an increase from $25 million to $50 million is 100% increase and since the price of gold also increased by 100% the answer is 0 because they cancel out $25 million, because the price increased by 25 million

What type of good are the following? (Final/Intermediate) 1. Running shoes 2. Cotton fibers 3. Watches 4. Textbooks 5. Coal 6. Sunscreen 7. Lumber

1. Final 2. Intermediate 3. Final 4. Final 5. Intermediate 6. Final 7. Intermediate

Changes in inventories are included as part of investment spending because anything produced by a business that has not been sold during the accounting period is something in which the business has invested.

1. not been sold during the accounting period is something in which the business has invested this is because all inventories not sold by businesses are expected to eventually be used by the business. These items that are kept voluntarily or involuntarily are considered by the businesses to be assets.

According to the data in Exhibit 18-6, the GDP deflator in 2016 (the base year) was 2016 Bananas: 100 produced at $2 2017 Bananas: 125 produced at $4 2016 Sunscreen: 60 produced at $5 2017 Sunscreen: 75 produced at $4

100 the GDP deflator in base year is always 100

According to the data in Exhibit 18-6, using 2016 as the base year, the GDP price deflator in 2017 was 2016 Bananas: 100 produced at $2 2016 Sunscreen: 60 produced at $5 2017 Bananas: 125 produced at $4 2017 Sunscreen: 75 produced at $4

128 For this one you first have to find the Real GDP in 2017 using 2017 prices (125*4)+(75*4) and then divide by the real GDP in 2017 but using 2016 prices ( 125*2)+(5*75). For both you use the prices in 2016 the only thing that changes is the quantity. (125*4)+(75*4) / (125*2)+(5*75) - 1 *100

The information in Exhibit 18-7 gives the 2011 base period market basket and prices used to construct the CPI for a small nation. It also has the 2016 prices. What is the value of the CPI for the period 2016? Movie Tickets: (2011) 4 at $5.00 --> (2016) $7.50 Starbucks Coffee: (2011) 2 at $3.00 --> (2016) $3.00 Cans of soda: (2011) 4 at $1.00 --> (2016) $1.50

140 (4*5.00)+(2*3.00)+(4*1.00) = 30 (4*7.50)+(2*3.00)+(4*1.50) = 42 (42/30) * 100 = 140

If nominal GDP is $5 trillion, and the GDP price deflator is 125, what is real GDP?

$4 trillion

Exhibit 18-1 summarizes a certain economy's final output. According to this table, GDP equals Smartphones: 10 produced at $500 per unit Movies: 100 produced at $10 per unit

$6000 10 * 500 = 5000 100 * 10 = 1000 5000+1000 = 6000

The annual output and prices of a 3-good economy are shown in the table below. Calculate nominal GDP in year 2 Year one 3 quarts of ice-cream at $9 5 bottles of shampoo at $1 6 jars of peanut butter at $6 Year two 7 quarts of ice cream at $3 10 bottles of shampoo at $1 5 Jars of peanut butter $5

56 same as last problem; multiply quantity by price. When it says year two multiply the year two prices by the year two quantity.

According to the data in Exhibit 18-4, 2015 national saving equaled ____. Total spending (billions of dollars) 2015: C = 3906 I = 737 G = 1099 NX = -20 2016: C = 4140 I = 797 G = 1132 NX = -30

717 Billion 2015 Investment minus the net exports

The annual output and prices of a 3-good economy are shown in the table below. Calculate nominal GDP in year 1. Year one 2 quarts of ice-cream at $8 9 bottles of shampoo at $5 4 jars of peanut butter at $3 Year two 5 quarts of ice cream at $2 3 bottles of shampoo at $7 8 Jars of peanut butter $1

73 to find nominal GDP just multiply the quantity by the price and add all the items up from year one (2*8)+(9*5)+(4*3)

Suppose that in 1984 the total output in a single-good economy was 10,000 buckets of chicken and the price of each bucket of chicken was $16. In 2005 the price per bucket of chicken was $20 and 22,000 buckets were produced. Determine the GDP price index for 1984, using 2005 as the base year. GDP price index =

80

Which of the following are consumer nondurable goods? 1. A couch 2. A burrito 3. A pair of jeans 4. Potatoes

A burrito A pair of jeans Mashed Potatoes

What of the following are consumer durable goods? 1. A new ford 2. Physical therapy 3. A dining room table 4. A jacket

A new ford A dining room table

Nominal GDP must always grow faster than real GDP.

False

The information in Exhibit 18-7 gives the 2011 base period market basket and prices used to construct the CPI for a small nation. It also has the 2016 prices. What is the value of the CPI for the base period 2011? Movie Tickets: (2011) 4 at $5.00 --> (2016) $7.50 Starbucks Coffee: (2011) 2 at $3.00 --> (2016) $3.00 Cans of soda: (2011) 4 at $1.00 --> (2016) $1.50

No matter what the CPI in the base year is always 100

The National savings equation is:

Y - C - G Y = GDP C = Consumption G = Government Spending

Which of the following are services? 1. Your completed taxes 2. Tires 3. Repairs to your truck 4. Peanut butter

Your completed taxes Repairs to your truck

The following table shows nominal GDP and an appropriate price index for a group of selected years. Compute real GDP, and indicate in each calculation whether you are inflating or deflating the nominal GDP data. 1968 : Nominal GDP ($914.80) Price Index (24.01) 1978 : Nominal GDP ($2298.80) Price Index (42.40) 1988 : Nominal GDP ($5105.40) Price Index (68.98) 1998 : Nominal GDP ($8798.50) Price Index (87.51) 2008 : Nominal GDP ($14446.40) Price Index (110.48)

a. 3810.08 b. 5421.70 c. 7401.28 d. 10054.28 e. 13076.03 a. Real GDP 1968 = $909.8/(22.01/100) = $4133.58 (inflating) b. Real GDP 1978 = $2293.8/(40.40/100) = $5677.72 (inflating) c. Real GDP 1988 = $5100.4/(66.98/100) = $7614.81 (inflating) d. Real GDP 1998 = $8793.5/(85.51/100) = $10,283.59 (inflating) e. Real GDP 2008 = $14,441.4/(108.48/100) = $13,312.50 (deflating)

a.) Nominal GDP is b.) The GDP deflator (price index) is a

a.) The market or money value of all final goods and services produced by the economy in a given year, whereas real GDP is adjusted for inflation b.) A measure of the price of a specified collection of goods and services compared to the price of a highly similar collection of goods and services in a reference year.

a.) Net exports are a country's exports of goods b.) Suppose foreigners spend $7 billion on American exports in a given year and Americans spend $5 billion on imports from abroad in the same year. What is the amount of America's net exports?

a.) and services less its imports of goods and services b.) +2 billion (7-5=2)

Investment as defined by economists differs from investment as defined by the general public in that: 1. Economic investment refers to the purchase of machinery, whereas financial investment refers to the purchase of financial assets 2. financial investment refers to the purchase of machinery, whereas economic investment refers to the purchase of financial assets\ 3. economic investment refers to the purchase of labor, whereas financial investment refers to the purchase of banking assets 4. economic investment refers to the motivation to earn a profit, whereas financial investment refers to the motivation to increase sales

economic investment refers to the purchase of machinery, whereas financial investment refers to the purchase of financial assets This is because economic investment is when you buy something that can produce goods/services in the future. Financial investment is when people buy stocks, bonds, or real estate in hope of having a financial gain.

Apply the rule of 70 to solve the following problem. Real GDP per person in Mexico in 2005 was about $12,000 per person, while it was about $48,000 per person in the United States. If real GDP per person in Mexico grows at the rate of 1 percent per year, how long will it take Mexico's real GDP per person to reach the level that the United States was at in 2005? (Hint: How many times would Mexico's 2005 real GDP per person have to double to reach the United States' 2005 real GDP per person?)

140 First you would find the interest rate to divide. Then you see it would take Mexico(12,000) 2 doubles to reach the GDP of USA(48,000) meaning that the calculation would be 70/1=70 --> 70*2=140

Assume that a grower of flower bulbs sells its annual output of bulbs to an Internet retailer for $70,000. The retailer, in turn, brings in $160,000 from selling the bulbs directly to final customers. What amount would these two transactions add to personal consumption expenditures and thus to GDP during the year?

160,000 It would be 160,000 because the retailer brings in 160,000 adding to GDP

The annual output and prices of a 3-good economy are shown in the table below. Calculate the growth rate of real GDP between year 1 and year 2, using year 1 as the base year. Submit your answer as a percentage rounding to two decimal places. Year one 27 quarts of ice-cream at $4.83 51 bottles of shampoo at $7.09 96 jars of peanut butter at $1.21 Year two 19 quarts of ice cream at $5.76 71 bottles of shampoo at $8.97 105 Jars of peanut butter $1.91

18.75 The first step on this problem is to multiply the quantity of year two goods by the prices of year one's goods. Then you multiply the price of year ones goods by the quantity of goods in year one. After getting those two numbers use the rate of change equation (old-new) / (new) and that gives you your answer. (19*4.83)+(71*7.09)+(105*1.21) = 722.21 (4.83*27)+(7.09*51)+(1.21*96) = 608.16 (722.21-608.16) / 608.16 = 18.75

Suppose that in 1984 the total output in a single-good economy was 10,000 buckets of chicken and the price of each bucket of chicken was $16. In 2005 the price per bucket of chicken was $20 and 22,000 buckets were produced. What were the amounts of real GDP in 1984 and 2005? Real GDP in 1984 = Real GDP in 2005 =

200,000 440,000

Suppose that in 1984 the total output in a single-good economy was 10,000 buckets of chicken and the price of each bucket of chicken was $16. In 2005 the price per bucket of chicken was $20 and 22,000 buckets were produced. Determine the GDP price index for 1984, using 2005 as the base year. By what percentage did the price level, as measured by this index, rise between 1984 and 2005? =

25%

According to the data in Exhibit 18-6, using 2016 as the base year, prices rose

28 percent we already calculated this in the above problem and since it was 128% you can deduct that prices rose 28% because its 28 over 100

The information in Exhibit 18-7 gives the 2011 base period market basket and prices used to construct the CPI for a small nation. It also has the 2016 prices. What is the total rate of price increase over this period? What is the approximate annual rate of inflation during this period?

40% (140 (40 over 100)) 8% (40/5 = 8) (2016 is five years after 2011)

Assume that a national restaurant firm called BBQ builds 20 new restaurants at a cost of $1 million per restaurant. It outfits each restaurant with an additional $700,000 of equipment and furnishings. To help partially defray the cost of this expansion, BBQ issues and sells 700,000 shares of stock at $70 per share. What is the amount of purely financial investment that took place from BBQ's actions? Round to one decimal place and put your answer in millions of dollars (this means you don't put the zeros)

49 (70*700,000)=49,000,000 For financial investment you only look at the sale of stock

According to the data in Exhibit 18-4, 2015 national saving equaled ____.

50 Billion 2015: Y = 3906 + 737 + 1099 - 20 = 5722 2016: Y = 4140 + 797 + 1132 - 20 = 6039 The change is 50

Assume that a national restaurant firm called BBQ builds 20 new restaurants at a cost of $2 million per restaurant. It outfits each restaurant with an additional $800,000 of equipment and furnishings. To help partially defray the cost of this expansion, BBQ issues and sells 800,000 shares of stock at $80 per share. What is the amount of economic investment that has resulted from BBQ's actions? Round to one decimal place and put your answer in millions of dollars (this means you don't put the zeros)

56 (20*2,000,000)+(20*800,00)=56,000,000 For this one you only look at economic expansion which means assets. this being said you would multiply the number of stores by how much east one costs and then add the product of the number of stores and how much it costs to equip all of them with new equipment.