Week 4 Tutorial Question Solutions (Ch2 & 3)

Size: px
Start display at page:

Download "Week 4 Tutorial Question Solutions (Ch2 & 3)"

Transcription

1 Chapter 2: Q1: Macroeconomics P.52 Numerical Problems #3 part (a) Q2: Macroeconomics P.52 Numerical Problems #5 Chapter 3: Q3: Macroeconomics P.101 Numerical Problems #5 Q4: Macroeconomics P102 Analytical Problems #5 Q1: ABC Computer Company has a $20, 000,000 factory in Kanata. During the current year, ABC builds $2,000,000 worth of computer components. ABC s costs are labour $1,000,000; interest on debt, $100,000; and taxes, $200,000. ABC sells all its output to XYZ Supercomputer. Using ABC s components, XYZ builds four supercomputers at a cost of $800,000 each ($500,000 worth of components, $200,000 in labour costs, and $100,000 in taxes per computer). XYZ has a $30,000,000 factory. XYZ sells three of the supercomputers for $1,000,000 each; at year s end, it has not sold the fourth. The unsold computer is carried on XYZ s books as an $800,000 increase in inventory. a. Calculate the contributions to GDP of these transactions, showing that all three approaches give the same answer. 1) Product Approach: The GDP contributions of these companies are $3.8 million. The value added by ABC is 2 million while the value added by XYX is 1.8 million. You can also think that ABC did not produce any final good as they are all sold to XYZ as intermediate goods. So the value of the final product is 3 million worth of supercomputers sold in the market plus 0.8 million unsold supercomputer in inventory. In total we get $3.8 million worth of GDP. 2) Expenditure Approach: GDP = C + I + G + NX where C = $3 million spent by households on supercomputer, I = $0.8 million as firm s inventory investment, G and NX = $0 in this case. So we have GDP = $3.8 million. 3) Income Approach: GDP = labour income + corporate profits + interest and investment income + unincorporated business income + indirect taxes subsidies + depreciation The income approach yields the same GDP total contribution. The amounts are: Week 4 Page 1

2 ABC XYZ Total Labour $1.0 million $0.8 million $1.8 million Profit $0.7 million $0.6 million $1.3 million Taxes $0.2 million $0.4 million $0.6 million Interest $0.1 million $0.0 million $0.1 million Total of all incomes = $3.8 million Q2: You are given the following information about an economy: Gross private domestic investment 40 Government purchases of goods and services 30 Gross national product (GNP) 200 Current account balance -20 Taxes 60 Government transfer payments 25 Interest payment from the government (all to domestic households) 15 Factor income from the rest of the world 7 Factor payment to the rest of the world 9 Find the following, assuming that government investment is zero: a. Consumption b. Net exports c. GDP d. Net factor payments e. Private saving f. Government saving g. National saving Given data: I = 40, G = 30, GNP = 200, CA = 20 = NX + NFP, T = 60, TR = 25, INT = 15, NFP = 7 9 = 2. Week 4 Page 2

3 a. Consumption = 150 Week 4 Tutorial Question Solutions (Ch2 & 3) Since GDP = GNP NFP, thus GDP = Y = 200 ( 2) = 202 Since NX + NFP = CA, thus NX = CA NFP = 20 ( 2) = 18. Since Y = C + I + G + NX, thus C = Y (I + G + NX) = 202 ( ( 18)) = 150. b. Net exports = 18 Since CA = 20 = NX + NFP and NFP = 7 9 = 2. Thus NX = CA NFP = -20 (-2) = -18 c. GDP = 202 Since GDP = GNP NFP, thus GDP = Y = 200 ( 2) = 202 d. Net factor payments from abroad = 2 NFP = 7 9 = 2. e. Private saving = 30 Spvt = (Y + NFP T + TR + INT) C = (202 + ( 2) ) 150 = 30. f. Government saving = 10 Sgovt = (T TR INT) G = ( ) 30 = 10 g. National saving = 20 S = Spvt + Sgovt = 30 + ( 10) =20. Q3: Consider an economy in which the marginal product of labour MPN is MPN = 309 2N, where N is the amount of labour used. The amount of labour supplied, NS, is given by NS = w + 2T, where w is the real wage and T is a lumpsum tax levied on individuals. a. Use the concepts of income effect and substitution effect to explain why an increase in lump-sum taxes will increase the amount of labour supplied. Week 4 Page 3

4 If the lump-sum tax is increased, there is an income effect on labour supply, not a substitution effect (since the real wage is not changed). An increase in the lump sum tax reduces a worker's wealth, so labour supply increases. b. Suppose that T = 35. What are the equilibrium values of employment and the real wage? If T = 35, then NS = w + (2 x 35) = w. Labour demand is given by w = MPN = 309 2N, or 2N = 309 w, so N = w/2. Setting labour supply equal to labour demand gives: w/2 = w, so 62.5 = 12.5w, thus w = 62.5/12.5 = 5. With w = 5, N = 92 + (12 x 5) = 152. c. With T remaining equal to 35, the government passes minimum-wage legislation that requires firms to pay a real wage greater than or equal to 7. What are the resulting values of the employment and the real wage? Since the equilibrium real wage (w = $5) is below the minimum wage, the minimum wage is binding. With w = 7, N = /2 = Note: NS = 92 + (12 x 7) = 176, so NS > N and there is unemployment. Q4: Suppose that under a new law all businesses must pay a tax equal to 6% of their sales revenue. Assume that this tax is not passed on to consumers. Instead, consumers pay the same prices after the tax is imposed as they did before. What is the effect of this tax on labour demand? If the labour supply is unchanged, what will be the effect of the tax on employment and the real wage? The tax reduces the marginal product of labour by 6%, since that portion of output goes to the government rather than to the firm. Thus labour demand is reduced. With labour supply unchanged, the downward shift in labour demand reduces the real wage and employment, as shown in the following figure. Week 4 Page 4

5 w NS W 1 W 2 ND 2 ND 1 N 2 N 1 N Week 4 Page 5

National Income Accounting

National Income Accounting Chapter 2 The Measurement and Structure of the Canadian Economy Economics 282 University of Alberta National Income Accounting The national income accounts is an accounting framework used in measuring

More information

Summer 2014 Week 3 Tutorial Questions (Ch2) Solutions

Summer 2014 Week 3 Tutorial Questions (Ch2) Solutions Chapter 2: Q1: Macroeconomics P.52 Numerical Problems #3 Q2: Macroeconomics P.52 Numerical Problems #6 Q3: Macroeconomics P.53 Numerical Problems #7 Q4: Macroeconomics P.53 Numerical Problems #9 Q5: Macroeconomics

More information

UNIT I NATIONAL INCOME AND MACROECONOMICS

UNIT I NATIONAL INCOME AND MACROECONOMICS UNIT I NATIONAL INCOME AND MACROECONOMICS 1 National Income National Income is defined as the sum total of all the goods and services produced in a country, in a particular period of time. Normally this

More information

Chapter 20. The Measurement of National Income. In this chapter you will learn to. National Output and Value Added

Chapter 20. The Measurement of National Income. In this chapter you will learn to. National Output and Value Added Chapter 20 The Measurement of National Income In this chapter you will learn to 1. Use the concept of value added to solve the problem of double counting when measuring national income. 2. Describe the

More information

GDP: The market value of final goods and services, newly produced WITHIN a nation during a fixed period.

GDP: The market value of final goods and services, newly produced WITHIN a nation during a fixed period. GDP: The market value of final goods and services, newly produced WITHIN a nation during a fixed period. Value added: Value of output (market value) purchased inputs (e.g. intermediate goods) GDP is a

More information

The level of price and inflation Real GDP: the values of goods and services measured using a constant set of prices

The level of price and inflation Real GDP: the values of goods and services measured using a constant set of prices Chapter 2: Key Macroeconomics Variables ECON2 (Spring 20) 2 & 4.3.20 (Tutorial ) National income accounting Gross domestic product (GDP): The market value of all final goods and services produced within

More information

Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004

Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004 Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004 Sample Final Exam Name Id # Part B Instructions: Please answer in the space provided and circle your answer on the question paper as well.

More information

National Income and Balance of Payments Accounting. Chapter 13

National Income and Balance of Payments Accounting. Chapter 13 National Income and Balance of Payments Accounting Chapter 13 Outline GNP Government budget National saving National wealth Balance of payments accounting Gross National Product (GNP) Product Approach

More information

ECO 100Y INTRODUCTION TO ECONOMICS Term Test # 3

ECO 100Y INTRODUCTION TO ECONOMICS Term Test # 3 Department of Economics Prof. Gustavo Indart University of Toronto February 15, 2013 ECO 100Y INTRODUCTION TO ECONOMICS Term Test # 3 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS: 1. The total time

More information

Measuring a Nation s Income

Measuring a Nation s Income Measuring a Nation s Income I. Review of the Definitions of Microeconomics and Macroeconomics A. Definition of microeconomics: the study of how households and firms make decisions and how they interact

More information

ECON300, Spring 2012 Intermediate Macroeconomics Professor: Hui He. Homework 1 Suggested Answer (Total points: 100)

ECON300, Spring 2012 Intermediate Macroeconomics Professor: Hui He. Homework 1 Suggested Answer (Total points: 100) ECON300, Spring 2012 Intermediate Macroeconomics Professor: Hui He Homework 1 Suggested Answer (Total points: 100) Understanding the growth rate and how to measure it Problem no. 1 on page 35. (10 points)

More information

Practice Problems on the Capital Market

Practice Problems on the Capital Market Practice Problems on the Capital Market 1- Define marginal product of capital (i.e., MPK). How can the MPK be shown graphically? The marginal product of capital (MPK) is the output produced per unit of

More information

NATIONAL INCOME AND PRODUCT ACCOUNTING MEASURING THE MACROECONOMY

NATIONAL INCOME AND PRODUCT ACCOUNTING MEASURING THE MACROECONOMY NATIONAL INCOME AND PRODUCT ACCOUNTING MEASURING THE MACROECONOMY 1. NIPA: GNP and GDP 2. Saving and Wealth 3. Prices and Inflation 4. Unemployment 5. Problems with Measuring the Macroeconomy There are

More information

CHAPTER 5: MEASURING GDP AND ECONOMIC GROWTH

CHAPTER 5: MEASURING GDP AND ECONOMIC GROWTH CHAPTER 5: MEASURING GDP AND ECONOMIC GROWTH Learning Goals for this Chapter: To know what we mean by GDP and to use the circular flow model to explain why GDP equals aggregate expenditure and aggregate

More information

MEASURING GDP AND ECONOMIC GROWTH CHAPTER

MEASURING GDP AND ECONOMIC GROWTH CHAPTER MEASURING GDP AND ECONOMIC GROWTH CHAPTER Objectives After studying this chapter, you will able to Define GDP and use the circular flow model to explain why GDP equals aggregate expenditure and aggregate

More information

Wages Coconuts 200 Fish 100 Consumption Coconuts 200 Fish 100

Wages Coconuts 200 Fish 100 Consumption Coconuts 200 Fish 100 Chapter 2 Numerical 1 Professor Gilligan Production Coconuts 1000 Fish 500 Gilligan wages Fish 100 Stored coconuts Fertilizer 100 Price 2 coconuts per fish Wages Fish 100 Consumption Fish 100 GDP= Value

More information

Unit 4: Measuring GDP and Prices

Unit 4: Measuring GDP and Prices Unit 4: Measuring GDP and Prices ECO 120 Global Macroeconomics 1 1.1 Reading Reading Module 10 - pages 106-110 Module 11 1.2 Goals Goals Specific Goals: Understand how to measure a country s output. Learn

More information

Name: Date: 3. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income

Name: Date: 3. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income Name: Date: 1. GDP is all of the following except the total: A) expenditure of everyone in the economy. B) income of everyone in the economy. C) expenditure on the economy's output of goods and services.

More information

1. From the following data calculate GNP at factor cost by Income Method & Expenditure Method. Rs. in Crores

1. From the following data calculate GNP at factor cost by Income Method & Expenditure Method. Rs. in Crores National Income Accounting 1. From the following data calculate GNP at factor cost by Income Method & Expenditure Method Items Rs. in Crores Net Domestic capital formation 500 Compensation of employees

More information

CHAPTER 20 GROSS DOMESTIC PRODUCT ACCOUNTING

CHAPTER 20 GROSS DOMESTIC PRODUCT ACCOUNTING CHAPTER 20 GROSS DOMESTIC PRODUCT ACCOUNTING Chapter in a Nutshell Gross domestic product was introduced in the previous chapter as a basic measure of macroeconomic performance. This chapter identifies

More information

The Circular Flow 1/15/2013. Gross Domestic Product: Expenditure and Income

The Circular Flow 1/15/2013. Gross Domestic Product: Expenditure and Income IN THIS CHAPTER, YOU WILL LEARN: ECON 3010 Intermediate Macroeconomics Chapter 2 The Data of Macroeconomics the meaning and measurement of the most important macroeconomic statistics: gross domestic product

More information

31. Gross Domestic Product equals a. Y = C + I G + NX. b. Y = C I + G + NX. c. Y = C + I + G + NX.

31. Gross Domestic Product equals a. Y = C + I G + NX. b. Y = C I + G + NX. c. Y = C + I + G + NX. GDP Review Questions 13. Gross Domestic Product measures the a. quantity of the goods and services produced in a given year, listed item by item, within a country. b. income of the business sector within

More information

Measuring a Nation s Income THE MEASUREMENT OF GROSS DOMESTIC PRODUCT. In this chapter, look for the answers to these questions:

Measuring a Nation s Income THE MEASUREMENT OF GROSS DOMESTIC PRODUCT. In this chapter, look for the answers to these questions: In this chapter, look for the answers to these questions: What is Gross Domestic Product (GDP)? 5 How is GDP related to a nation s total income and spending? What are the components of GDP? How is GDP

More information

The Circular Flow of Income and Expenditure

The Circular Flow of Income and Expenditure The Circular Flow of Income and Expenditure Imports HOUSEHOLDS Savings Taxation Govt Exp OTHER ECONOMIES GOVERNMENT FINANCIAL INSTITUTIONS Factor Incomes Taxation Govt Exp Consumer Exp Exports FIRMS Capital

More information

ECONOMIC GROWTH* Chapter. Key Concepts

ECONOMIC GROWTH* Chapter. Key Concepts Chapter 5 MEASURING GDP AND ECONOMIC GROWTH* Key Concepts Gross Domestic Product Gross domestic product, GDP, is the market value of all the final goods and services produced within in a country in a given

More information

Macroeconomics: GDP, GDP Deflator, CPI, & Inflation

Macroeconomics: GDP, GDP Deflator, CPI, & Inflation HOSP 2207 (Economics) Learning Centre Macroeconomics: GDP, GDP Deflator, CPI, & Inflation Macroeconomics is the big picture view of an economy. Microeconomics looks at the market for a specific good, like

More information

Practice Problems on NIPA and Key Prices

Practice Problems on NIPA and Key Prices Practice Problems on NIPA and Key Prices 1- What are the three approaches to measuring economic activity? Why do they give the same answer? The three approaches to national income accounting are the product

More information

7. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income

7. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income Name: Date: 1. GDP is all of the following except the total: A) expenditure of everyone in the economy. B) income of everyone in the economy. C) expenditure on the economy's output of goods and services.

More information

Lecture 1: current account - measurement and theory

Lecture 1: current account - measurement and theory Lecture 1: current account - measurement and theory What is international finance (as opposed to international trade)? International trade: microeconomic approach (many goods and factors). How cross country

More information

Week 8 Tutorial Questions Solutions (Ch5)

Week 8 Tutorial Questions Solutions (Ch5) Chapter 5: Q1: Macroeconomics P.177 Numerical Problems #1 Q2: Macroeconomics P.177 Numerical Problems #3 Q3: Macroeconomics P.178 Numerical Problems #5 Q4: Macroeconomics P.179 Analytical Problems #5 Q1:

More information

Practice Problems on Current Account

Practice Problems on Current Account Practice Problems on Current Account 1- List de categories of credit items and debit items that appear in a country s current account. What is the current account balance? What is the relationship between

More information

Topic 4: Different approaches to GDP

Topic 4: Different approaches to GDP Topic 4: Different approaches to GDP PRINCIPLES OF MACROECONOMICS Dr. Fidel Gonzalez Department of Economics and Intl. Business Sam Houston State University Three different approaches to measure the GDP

More information

These are some practice questions for CHAPTER 23. Each question should have a single answer. But be careful. There may be errors in the answer key!

These are some practice questions for CHAPTER 23. Each question should have a single answer. But be careful. There may be errors in the answer key! These are some practice questions for CHAPTER 23. Each question should have a single answer. But be careful. There may be errors in the answer key! 67. Public saving is equal to a. net tax revenues minus

More information

Chapter 2 The Measurement and Structure of the National Economy

Chapter 2 The Measurement and Structure of the National Economy Chapter 2 The Measurement and Structure of the National Economy Multiple Choice Questions 1. The three approaches to measuring economic activity are the (a) cost, income, and expenditure approaches. (b)

More information

6. Real GDP means the value of goods and services is measured in prices. A) current B) actual C) constant D) average

6. Real GDP means the value of goods and services is measured in prices. A) current B) actual C) constant D) average Name: Date: 1. Assume that total output consists of 4 apples and 6 oranges and that apples cost $1 each and oranges cost $0.50 each. In this case, the value of GDP is: A) 10 pieces of fruit. B) $7. C)

More information

National Income in India, Concept and Measurement. General Economics

National Income in India, Concept and Measurement. General Economics National Income in India, Concept and Measurement General Economics National Income National income is the money value of all the final goods and services produced by a country during a period of one year.

More information

Economics 152 Solution to Sample Midterm 1

Economics 152 Solution to Sample Midterm 1 Economics 152 Solution to Sample Midterm 1 N. Das PART 1 (81 POINTS):Answer the following 27 multiple choice questions on the scan sheet. Each question is worth 3 points). 1. Gross domestic product (GDP)

More information

13 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Chapter. Key Concepts

13 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Chapter. Key Concepts Chapter 3 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Key Concepts Fixed Prices and Expenditure Plans In the very short run, firms do not change their prices and they sell the amount that is demanded.

More information

The Data of Macroeconomics

The Data of Macroeconomics CHAPTER 2 The Data of Macroeconomics Modified for ECON 2204 by Bob Murphy 2016 Worth Publishers, all rights reserved IN THIS CHAPTER, YOU WILL LEARN:... the meaning and measurement of the most important

More information

Noah Williams Economics 312. University of Wisconsin Spring 2013. Midterm Examination Solutions

Noah Williams Economics 312. University of Wisconsin Spring 2013. Midterm Examination Solutions Noah Williams Economics 31 Department of Economics Macroeconomics University of Wisconsin Spring 013 Midterm Examination Solutions Instructions: This is a 75 minute examination worth 100 total points.

More information

3 Macroeconomics LESSON 1

3 Macroeconomics LESSON 1 3 Macroeconomics LESSON 1 nesian Model Introduction and Description This lesson establishes fundamental macro concepts. The nesian model is the simplest macro model and is the starting point from the national

More information

Reference: Gregory Mankiw s Principles of Macroeconomics, 2 nd edition, Chapters 10 and 11. Gross Domestic Product

Reference: Gregory Mankiw s Principles of Macroeconomics, 2 nd edition, Chapters 10 and 11. Gross Domestic Product Macroeconomics Topic 1: Define and calculate GDP. Understand the difference between real and nominal variables (e.g., GDP, wages, interest rates) and know how to construct a price index. Reference: Gregory

More information

Big Concepts. Measuring U.S. GDP. The Expenditure Approach. Economics 202 Principles Of Macroeconomics

Big Concepts. Measuring U.S. GDP. The Expenditure Approach. Economics 202 Principles Of Macroeconomics Lecture 6 Economics 202 Principles Of Macroeconomics Measuring GDP Professor Yamin Ahmad Real GDP and the Price Level Economic Growth and Welfare Big Concepts Ways to Measure GDP Expenditure Approach Income

More information

HW 2 Macroeconomics 102 Due on 06/12

HW 2 Macroeconomics 102 Due on 06/12 HW 2 Macroeconomics 102 Due on 06/12 1.What are the three important macroeconomic goals about which most economists, and society at large, agree? a. economic growth, full employment, and low interest rates

More information

INTRODUCTION TO MACROECONOMICS MIDTERM- SAMPLE QUESTIONS

INTRODUCTION TO MACROECONOMICS MIDTERM- SAMPLE QUESTIONS INTRODUCTION TO MACROECONOMICS MIDTERM- SAMPLE QUESTIONS MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In May 2009, Ford Motor Company's sales

More information

7. Which of the following is not an important stock exchange in the United States? a. New York Stock Exchange

7. Which of the following is not an important stock exchange in the United States? a. New York Stock Exchange Econ 20B- Additional Problem Set 4 I. MULTIPLE CHOICES. Choose the one alternative that best completes the statement to answer the question. 1. Institutions in the economy that help to match one person's

More information

(1) A reduction in the lump sum tax (2) A rise in the marginal propensity to import (3) A decrease in the marginal propensity to consume

(1) A reduction in the lump sum tax (2) A rise in the marginal propensity to import (3) A decrease in the marginal propensity to consume S.7 Economics On 3 & 4-Sector Simple Keynesian Models S.7 Economics/3 & 4-sector Keynesian Models/p.1 95 #4 Which of the following would reduce the multiplier effect of investment on national income? (1)

More information

Cosumnes River College Principles of Macroeconomics Problem Set 3 Due September 17, 2015

Cosumnes River College Principles of Macroeconomics Problem Set 3 Due September 17, 2015 Cosumnes River College Principles of Macroeconomics Problem Set 3 Due September 17, 2015 Name: Solutions Fall 2015 Prof. Dowell Instructions: Write the answers clearly and concisely on these sheets in

More information

MEASURING A NATION S INCOME

MEASURING A NATION S INCOME 10 MEASURING A NATION S INCOME WHAT S NEW IN THE FIFTH EDITION: There is more clarification on the GDP deflator. The Case Study on Who Wins at the Olympics? is now an FYI box. LEARNING OBJECTIVES: By the

More information

Chapter 11: Activity

Chapter 11: Activity Economics for Managers by Paul Farnham Chapter 11: Measuring Macroeconomic Activity 11.1 Measuring Gross Domestic Product (GDP) GDP: the market value of all currently yproduced final goods and services

More information

Lecture 1: Gross Domestic Product

Lecture 1: Gross Domestic Product Lecture 1: Gross Domestic Product August 28, 2014 Prof. Wyatt Brooks MEASURING A NATION S INCOME 0 Structure of the Course First Part of the Class: The macroeconomy in the long run Why are countries rich

More information

Study Questions 8 (Keynesian Model) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Study Questions 8 (Keynesian Model) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Study Questions 8 (Keynesian Model) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In the Keynesian model of aggregate expenditure, real GDP is

More information

ECON 3560/5040 Week 2. 1. What Determines the Total Production of Goods and Services

ECON 3560/5040 Week 2. 1. What Determines the Total Production of Goods and Services ECON 3560/5040 Week 2 NATIONAL INCOME 1. What Determines the Total Production of Goods and Services - Factors of production: the inputs used to produce goods and services (1) Capital (K) (2) Labor (L)

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Suvey of Macroeconomics, MBA 641 Fall 2006, Final Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Modern macroeconomics emerged from

More information

A. GDP, Economic Growth, and Business Cycles

A. GDP, Economic Growth, and Business Cycles ECON 3023 Hany Fahmy FAll, 2009 Lecture Note: Introduction and Basic Concepts A. GDP, Economic Growth, and Business Cycles A.1. Gross Domestic Product (GDP) de nition and measurement The Gross Domestic

More information

MEASURING GDP AND ECONOMIC GROWTH*

MEASURING GDP AND ECONOMIC GROWTH* Chapter 5 MEASURING GDP AND ECONOMIC GROWTH* Gross Domestic Product Topic: GDP 1) Gross domestic product is the total produced within a country in a given time period. A) market value of all final and

More information

Measuring the Aggregate Economy

Measuring the Aggregate Economy CHAPTER 25 Measuring the Aggregate Economy The government is very keen on amassing statistics... They collect them, add them, raise them to the n th power, take the cube root and prepare wonderful diagrams.

More information

EC201 Intermediate Macroeconomics. EC201 Intermediate Macroeconomics Problem Set 1 Solution

EC201 Intermediate Macroeconomics. EC201 Intermediate Macroeconomics Problem Set 1 Solution EC201 Intermediate Macroeconomics EC201 Intermediate Macroeconomics Problem Set 1 Solution 1) Given the difference between Gross Domestic Product and Gross National Product for a given economy: a) Provide

More information

11.1 Estimating Gross Domestic Product (GDP) Objectives

11.1 Estimating Gross Domestic Product (GDP) Objectives 11.1 Estimating Gross Domestic Product (GDP) Objectives Describe what the gross domestic product measures. Learn two ways to calculate the gross domestic product, and explain why they are equivalent. 11.1

More information

Economics 212 Principles of Macroeconomics Study Guide. David L. Kelly

Economics 212 Principles of Macroeconomics Study Guide. David L. Kelly Economics 212 Principles of Macroeconomics Study Guide David L. Kelly Department of Economics University of Miami Box 248126 Coral Gables, FL 33134 dkelly@miami.edu First Version: Spring, 2006 Current

More information

Macroeconomics, 10e, Global Edition (Parkin) Chapter 24 Finance, Saving, and Investment. 1 Financial Institutions and Financial Markets

Macroeconomics, 10e, Global Edition (Parkin) Chapter 24 Finance, Saving, and Investment. 1 Financial Institutions and Financial Markets Macroeconomics, 10e, Global Edition (Parkin) Chapter 24 Finance, Saving, and Investment 1 Financial Institutions and Financial Markets 1) The term "capital," as used in macroeconomics, refers to A) the

More information

Week 2 Tutorial Question Solutions (Ch1 & 2)

Week 2 Tutorial Question Solutions (Ch1 & 2) Q1: Here are some macroeconomic data for the country of Oz for the years 2011 and 2012. 2011 2012 Output 12,000 tonnes of potatoes 14,300 tonnes of potatoes Employment 1,000 workers 1,100 workers Unemployment

More information

Chapter 32 A Macroeconomic Theory of the Open Economy

Chapter 32 A Macroeconomic Theory of the Open Economy Chapter 32 A Macroeconomic Theory of the Open Economy TRUE/FALSE 1. Over the past two decades, the United States has persistently exported more goods and services than it has imported. ANS: F DIF: 1 REF:

More information

Answers to Text Questions and Problems. Chapter 22. Answers to Review Questions

Answers to Text Questions and Problems. Chapter 22. Answers to Review Questions Answers to Text Questions and Problems Chapter 22 Answers to Review Questions 3. In general, producers of durable goods are affected most by recessions while producers of nondurables (like food) and services

More information

Chapter 24. What will you learn in this chapter? Valuing an economy. Measuring the Wealth of Nations

Chapter 24. What will you learn in this chapter? Valuing an economy. Measuring the Wealth of Nations Chapter 24 Measuring the Wealth of Nations 2014 by McGraw-Hill Education 1 What will you learn in this chapter? How to calculate gross domestic product (GDP). Why each component of GDP is important. What

More information

Key elements of Monetary Policy

Key elements of Monetary Policy Key elements of Monetary Policy Part II Economic Policy Course for Civil Society June 2004 World Bank Institute Structure of the Presentation Introduction Current account Balance of Payments Debt Current

More information

Chapter 12. National Income Accounting and the Balance of Payments. Slides prepared by Thomas Bishop

Chapter 12. National Income Accounting and the Balance of Payments. Slides prepared by Thomas Bishop Chapter 12 National Income Accounting and the Balance of Payments Slides prepared by Thomas Bishop Preview National income accounts measures of national income measures of value of production measures

More information

CHAPTER 7: AGGREGATE DEMAND AND AGGREGATE SUPPLY

CHAPTER 7: AGGREGATE DEMAND AND AGGREGATE SUPPLY CHAPTER 7: AGGREGATE DEMAND AND AGGREGATE SUPPLY Learning goals of this chapter: What forces bring persistent and rapid expansion of real GDP? What causes inflation? Why do we have business cycles? How

More information

A HOW-TO GUIDE: FINDING AND INTERPRETING GDP STATISTICS

A HOW-TO GUIDE: FINDING AND INTERPRETING GDP STATISTICS A HOW-TO GUIDE: FINDING AND INTERPRETING GDP STATISTICS By Jim Stanford Canadian Centre for Policy Alternatives, 2008 Non-commercial use and reproduction, with appropriate citation, is authorized. This

More information

Macroeconomics Instructor: Jen Dinsmore Hanson Homework Assignment Chapter 9. Multiple Choice Questions

Macroeconomics Instructor: Jen Dinsmore Hanson Homework Assignment Chapter 9. Multiple Choice Questions Macroeconomics Instructor: Jen Dinsmore Hanson Homework Assignment Chapter 9 Multiple Choice Questions 1. Net domestic product is usually preferred to GDP by economists because net national product A.

More information

This paper is not to be removed from the Examination Halls

This paper is not to be removed from the Examination Halls ~~EC2065 ZA d0 This paper is not to be removed from the Examination Halls UNIVERSITY OF LONDON EC2065 ZA BSc degrees and Diplomas for Graduates in Economics, Management, Finance and the Social Sciences,

More information

2. With an MPS of.4, the MPC will be: A) 1.0 minus.4. B).4 minus 1.0. C) the reciprocal of the MPS. D).4. Answer: A

2. With an MPS of.4, the MPC will be: A) 1.0 minus.4. B).4 minus 1.0. C) the reciprocal of the MPS. D).4. Answer: A 1. If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to: A) save is three-fifths. B) consume is one-half.

More information

Chapter 12. Aggregate Expenditure and Output in the Short Run

Chapter 12. Aggregate Expenditure and Output in the Short Run Chapter 12. Aggregate Expenditure and Output in the Short Run Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 203 502 Principles of Macroeconomics Aggregate Expenditure (AE)

More information

The National Accounts and the Public Sector by Casey B. Mulligan Fall 2010

The National Accounts and the Public Sector by Casey B. Mulligan Fall 2010 The National Accounts and the Public Sector by Casey B. Mulligan Fall 2010 Factors of production help interpret the national accounts. The factors are broadly classified as labor or (real) capital. The

More information

This paper is not to be removed from the Examination Halls

This paper is not to be removed from the Examination Halls This paper is not to be removed from the Examination Halls UNIVERSITY OF LONDON EC2065 ZA BSc degrees and Diplomas for Graduates in Economics, Management, Finance and the Social Sciences, the Diplomas

More information

* * * 8 NATIONAL INCOME. Unit 1 : National Income Analysis

* * * 8 NATIONAL INCOME. Unit 1 : National Income Analysis 8 NATIONAL INCOME Macro / Topic 8-1 / P. 1 Unit 1 : National Income Analysis I Concepts and Meaning ( Definition ) II Approaches and Formulae III Measurement of GNP IV Economic Analysis of GNP National

More information

The Short-Run Macro Model. The Short-Run Macro Model. The Short-Run Macro Model

The Short-Run Macro Model. The Short-Run Macro Model. The Short-Run Macro Model The Short-Run Macro Model In the short run, spending depends on income, and income depends on spending. The Short-Run Macro Model Short-Run Macro Model A macroeconomic model that explains how changes in

More information

ASSIGNMENT 1 ST SEMESTER : MACROECONOMICS (MAC) ECONOMICS 1 (ECO101) STUDY UNITS COVERED : STUDY UNITS 1 AND 2. DUE DATE : 3:00 p.m.

ASSIGNMENT 1 ST SEMESTER : MACROECONOMICS (MAC) ECONOMICS 1 (ECO101) STUDY UNITS COVERED : STUDY UNITS 1 AND 2. DUE DATE : 3:00 p.m. Page 1 of 13 ASSIGNMENT 1 ST SEMESTER : MACROECONOMICS (MAC) ECONOMICS 1 (ECO101) STUDY UNITS COVERED : STUDY UNITS 1 AND 2 DUE DATE : 3:00 p.m. 19 MARCH 2013 TOTAL MARKS : 100 INSTRUCTIONS TO CANDIDATES

More information

SAMPLE PAPER II ECONOMICS Class - XII BLUE PRINT

SAMPLE PAPER II ECONOMICS Class - XII BLUE PRINT SAMPLE PAPER II ECONOMICS Class - XII Maximum Marks 100 Time : 3 hrs. BLUE PRINT Sl. No. Form of Very Short Short Answer Long Answer Total Questions (1 Mark) (3, 4 Marks) (6 Marks) Content Unit 1 Unit

More information

Lecture 3: National Income Accounting Reference - Chapter 5. 3) The Income Approach

Lecture 3: National Income Accounting Reference - Chapter 5. 3) The Income Approach Lecture 3: National Income Accounting Reference - Chapter 5 3) The Income Approach The income approach defines GDP in terms of the income derived or created from producing final goods and services. Net

More information

Chapter 8. GDP : Measuring Total Production and Income

Chapter 8. GDP : Measuring Total Production and Income Chapter 8. GDP : Measuring Total Production and Income Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 203 502 Principles of Macroeconomics Related Economic Terms Macroeconomics:

More information

= C + I + G + NX ECON 302. Lecture 4: Aggregate Expenditures/Keynesian Model: Equilibrium in the Goods Market/Loanable Funds Market

= C + I + G + NX ECON 302. Lecture 4: Aggregate Expenditures/Keynesian Model: Equilibrium in the Goods Market/Loanable Funds Market Intermediate Macroeconomics Lecture 4: Introduction to the Goods Market Review of the Aggregate Expenditures model and the Keynesian Cross ECON 302 Professor Yamin Ahmad Components of Aggregate Demand

More information

Households Wages, profit, interest, rent = $750. Factor markets. Wages, profit, interest, rent = $750

Households Wages, profit, interest, rent = $750. Factor markets. Wages, profit, interest, rent = $750 KrugmanMacro_SM_Ch07.qxp 11/9/05 4:47 PM Page 87 Tracking the Macroeconomy 1. Below is a simplified circular-flow diagram for the economy of Micronia. a. What is the value of GDP in Micronia? b. What is

More information

Measuring Economic Performance. Chapter 2

Measuring Economic Performance. Chapter 2 Measuring Economic Performance Chapter 2 Outline Gross Domestic Product Measuring GDP Through Spending Measuring GDP Through Production Measuring GDP Through Income Saving and Investment Transactions with

More information

Chapter 5. Saving and Investment in the Open Economy. 2008 Pearson Addison-Wesley. All rights reserved

Chapter 5. Saving and Investment in the Open Economy. 2008 Pearson Addison-Wesley. All rights reserved Chapter 5 Saving and Investment in the Open Economy Chapter Outline Balance of Payments Accounting Goods Market Equilibrium in an Open Economy Saving and Investment in a Small Open Economy Saving and Investment

More information

1. Circular flow of income

1. Circular flow of income 1. Circular flow of income The circular flow of income Firms and households interact and exchange resources in an economy. Households supply firms with the factors of production, such as labour and capital,

More information

This is the on-line Multiple Choice Quiz for Chapter 4. Please do the following. Go to the special codes section on your score sheet

This is the on-line Multiple Choice Quiz for Chapter 4. Please do the following. Go to the special codes section on your score sheet Instructions: This is the on-line Multiple Choice Quiz for Chapter 4. Please do the following. Step I - Go to the special codes section on your score sheet Write your section number (1, or 4, or 5) under

More information

Name: Date: 3. Variables that a model tries to explain are called: A. endogenous. B. exogenous. C. market clearing. D. fixed.

Name: Date: 3. Variables that a model tries to explain are called: A. endogenous. B. exogenous. C. market clearing. D. fixed. Name: Date: 1 A measure of how fast prices are rising is called the: A growth rate of real GDP B inflation rate C unemployment rate D market-clearing rate 2 Compared with a recession, real GDP during a

More information

Macroeconomics Instructor Miller GDP Practice Problems

Macroeconomics Instructor Miller GDP Practice Problems Macroeconomics Instructor Miller GDP Practice Problems 1. Gross domestic product in the economy is measured by the A) total number of goods and services produced in the economy. B) dollar value of all

More information

Answers to Text Questions and Problems in Chapter 8

Answers to Text Questions and Problems in Chapter 8 Answers to Text Questions and Problems in Chapter 8 Answers to Review Questions 1. The key assumption is that, in the short run, firms meet demand at pre-set prices. The fact that firms produce to meet

More information

Miami Dade College. ECO 2013.005 Principles of Macroeconomics Spring 2014. Midterm #1 2/12/14

Miami Dade College. ECO 2013.005 Principles of Macroeconomics Spring 2014. Midterm #1 2/12/14 Miami Dade College ECO 2013.005 Principles of Macroeconomics Spring 2014 Midterm #1 2/12/14 1. A point on a nation s production possibilities curve represents a) An undesirable combination of goods and

More information

Ec1 ECONOMICS PAPER 1. INSTRUCTIONS TO CANDIDATES: (To be read out by the external invigilator before the start of the examination)

Ec1 ECONOMICS PAPER 1. INSTRUCTIONS TO CANDIDATES: (To be read out by the external invigilator before the start of the examination) INSTRUCTIONS TO CANDIDATES: (To be read out by the external invigilator before the start of the examination) DEPARTMENT OF EDUCATION HIGHER SCHOOL CERTIFICATE EXAMINATIONS ECONOMICS PAPER 1 Monday 23 October

More information

Agenda. Saving and Investment in the Open Economy. Balance of Payments Accounts. Balance of Payments Accounting. Balance of Payments Accounting.

Agenda. Saving and Investment in the Open Economy. Balance of Payments Accounts. Balance of Payments Accounting. Balance of Payments Accounting. Agenda. Saving and Investment in the Open Economy Goods Market Equilibrium in an Open Economy. Saving and Investment in a Small Open Economy. Saving and Investment in a Large Open Economy. 7-1 7-2 Balance

More information

Government Budget and Fiscal Policy CHAPTER

Government Budget and Fiscal Policy CHAPTER Government Budget and Fiscal Policy 11 CHAPTER The National Budget The national budget is the annual statement of the government s expenditures and tax revenues. Fiscal policy is the use of the federal

More information

University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi

University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi CH 27 Expenditure Multipliers 1) Disposable income is A) aggregate income minus transfer

More information

Why expenditure = income. The Circular Flow. Circular flow. Gross Domestic Product

Why expenditure = income. The Circular Flow. Circular flow. Gross Domestic Product Gross Domestic Product Why expenditure = income Two definitions: 1. Total expenditure on final goods and services 2. Total income earned by factors of production In In every transaction, the the buyer

More information

UNIT2:- Session 1-3 :- Cost analysis for planning and decision making :-

UNIT2:- Session 1-3 :- Cost analysis for planning and decision making :- UNIT2:- Session 1-3 :- Cost analysis for planning and decision making :- * Cost classification and approach :- A- Marginal costing :- - variable and fixed. - Variable cost is charged to the product unit.

More information

National Income Accounting and the Balance of Payments

National Income Accounting and the Balance of Payments National Income Accounting and the Balance of Payments Graciela L. Kaminsky Department of Economics George Washington University Lecture Notes 1 Questions The US current account deficit is about 7 percent

More information

CLASSICAL THEORY THE ECONOMY IN THE LONG RUN Main reference: N. Gregory Mankiw, Macroeconomics 5/e, Worth Publishers,

CLASSICAL THEORY THE ECONOMY IN THE LONG RUN Main reference: N. Gregory Mankiw, Macroeconomics 5/e, Worth Publishers, University of East London ELBS Economics EC201 MACROECONOMICS CLASSICAL THEORY THE ECONOMY IN THE LONG RUN Main reference: N. Gregory Mankiw, Macroeconomics 5/e, Worth Publishers, Chapter 3, National Income:

More information

At the end of Chapter 10, you will be able to answer the following:

At the end of Chapter 10, you will be able to answer the following: 1 Objectives for Chapter 10 The Circular Flow Model At the end of Chapter 10, you will be able to answer the following: 1. Explain the basic circular flow model. 2. Define "consumption" and "saving" 3.

More information