1. 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.
2. components of GDP(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. Ford sells Mustang from its inventory
d. You buy a pizza
e. California repaves Highway 101. f. Your parents buy a bottle of French wine.
g. Honda expands its factory in Marysville, Ohio.
3. As the chapter states, GDP does not include the value of used goods that are resold. Why would including such transactions make measure of economic GDP a less informative well-being?
4. Consider an economy that produces only produced Chocolate bars. In year 1, the quantity is 3 bars and the price is $4. In year 2, the produced is 4 bars and the price is $5. quantity 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?
f. In this one-good economy, how might you have answered parts(d) and(e) without first answering parts(b) and(c)?
5. Below are sonne data from the land of milk and honey
Price of Quantity of Price of Quantity of Milk Honey Honey Year Milk $2 100 quarts 50 quarts 2010 $1 200 2011 51 100 100 $4 200 2012 52
a. Compute nominal GDP, real GDP, and the GDP deflator for each year using 2010 as the base vear. 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 res 2012? Explain
6. Goods and services that are not sold in markets such as food produced and consumed at home, are generally not included in GDP. Can you think of how this might cause the numbers in the second column of Table 3 to be misleading in a comparison of the economic well-being of the United States and India? Explain.
7. Consider the following data on U.S. GDP.
a. What was the growth rate of nominal GDP between 1999 and 2009? (Hint: The growth rate of a variable x over a N-year period is calculated as 100×[X finai / Xinitial -1.]
b. What was the growth rate of the GDP deflator between 1999 and 2009?
c. What was real GDP in 1999 measured in 2005 prices?
d. What was real GDP in 2009 measured in 2005 prices?
e. What was the growth rate of real GDP between 1999 and 2009?
f. Was the growth rate of nominal GDP higher or lower than the growth rate of real GDP? Explain
9. A farmer grows wheat, which he sells to a miller for $100. The miller turns the wheat into flour, which he sells to a baker for $150. The baker turns the wheat into bread, which he sells to consumers for $180. Consumers eat the bread.