Question 1

Determine the amount contributed to GDP from the sale of 200,000 copies of the CD by R.L.Burnside (on Fat Possum Records)entitled "Too Bad Jim" by filling in the table below.Base your answer on the following information:
R.L.receives $3 per CD in royalties.
Fat Possum sells each CD to wholesalers for $10.
Wholesalers sold the CD to retailers for an average price of $12 per CD.
Retailers sold 200,000 CDs to consumers for $15 per CD.
Demonstrate how the value-added approach equals the final sales approach.
 $$\begin{array}{l}
\begin{array} {llll } 
& \text {Cost of  }& \text { Value of }&\
 \text { Participants}& \text {Materials }& \text {Sales }& \text { Value Added}\
 \text {R.L. }\
 \text {Fat Possum }\
 \text {Wholesalers }\
 \text {Retailers }\\
 \text {Totals }\
\end{array}
\end{array}$$

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Question 2

Why is it difficult to measure real wealth?

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Question 3

In economics it is important to know the distinction between flow concepts and stock concepts.Explain this distinction,and give examples of each.

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Question 4

Briefly describe two limitations of national income accounting.

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Question 5

What is nominal wealth?

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Question 6

If real income has risen from $5 trillion to $5.3 trillion and the price level went up by 12%,by what dollar amount has nominal income risen?

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Question 7

Suppose there is a stock market bubble (asset inflation)that bursts (rapid asset deflation).People see the value of their investments fall rapidly.Has their real wealth changed? Explain.

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Question 8

Which of the following transactions is considered a purchase of final output? Which one is considered the purchase of an intermediate good?
(a)Albert purchased a camera from the U.S.to use on his vacation in the Bahamas.
(b)Albert purchased a roll of film to use in his camera.
(c)An owner of a bakery purchased wheat to make bread.
(d)A chocolate factory purchased milk to make chocolate.
(e)The Ford Company purchased 10 tons of steel to make cars.
(f)Sue purchased cleaning detergent to use in her newly purchased washing machine.
(g)Karen bought tomato seeds and planted them in her backyard for her own use.

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Question 9

Assume an economy produces just cars and computers; use the information in the table below to answer the following questions about the GDP.
 $$\begin{array} { | l | l | c | l | c | } 
\hline & { \text { Cars } } & & { \text { Camputers } } \
\hline \text { Year } & \text { Quantity } & \text { Price } &  { \text { Quantity } } & \text { Price } \
\hline 2009 & 100 & \$ 10,000 & 1,000 & \$ 1,000 \
\hline 2010 & 110 & \$ 12,000 & 1,100 & \$ 900 \
\hline
\end{array}$$ (1)Calculate nominal GDP in 2009 and 2010.What is the growth rate in nominal GDP?
(2)Using 2009 as a base year,calculate real GDP in 2010.What is the growth rate in real GDP?
(3)Calculate the GDP deflator in 2010.

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Question 10

You've been given the following data:
 $$\begin{array} { | l | l | } 
\hline \text { Net non-business interest incame } & 27 \
\hline \text { Government purchases } & 600 \
\hline \text { Gros5 private investment } & 500 \
\hline \text { Depreciation } & 10 \
\hline \text { Net exgarts } & - 50 \
\hline \text { Persanal consumption } & 2,500 \
\hline \text { Foreign factar incame eaned domestically } & 320 \
\hline \text { Income fom fareipn domestic factor saurces } & 300 \
\hline
\end{array}$$ On the basis of these data calculate GDP,NDP,and GNP.

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 \[\begin{array}...

Question 11

In calculating GDP by the expenditure method,there are two ways to avoid the double counting of intermediate goods.Demonstrate your understanding of these two methods by showing how both produce the same calculation of contribution to GDP.Assume the following: 1)Iron ore is produced by iron mining,which is sold to steel makers for $30 million (we will make the simplifying assumption that iron mining uses no intermediate goods).2)The iron ore is all used to make steel,which is sold to automobile makers for $100 million.3)The steel is all used to make automobiles,which are sold to dealers for $250 million.4)All of the automobiles are sold by the dealers to consumers for $350 million.What are the two methods,and what contribution to GDP can be calculated by each method,from the above assumptions?

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Question 12

What is real wealth?

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Question 13

Answer all of the following questions concerning GDP growth.
(a)Nominal GDP increases from $5 trillion to $5.5 trillion while the price level increases by 10%.Has real income increased?
(b)Nominal GDP increases from $6 trillion to $6.8 trillion while real GDP increases from $6 trillion to $6.2 trillion.What happened to the price level?
(c)Nominal GDP increases from $7 trillion to $8 trillion while real GDP increases from $7 trillion to $7.5 trillion.By what percent did real income change?

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Question 14

Your economics professor asked you to use data from the U.S.economy to show that GNP can be calculated using the income approach and the expenditures approach.What type of data should you gather to complete this assignment?

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Question 15

If asset inflation has occurred,which has changed: real wealth,nominal wealth or both?

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Question 16

Describe in your own words the difference between a stock and a flow.For each of the following activities,determine whether it is a stock concept or a flow concept: (a)Sue earns $5.75 per hour working at the Burger Barn. (b)On his way home from work,Sam finds a ten-dollar bill. (c)Upon graduation,John accepts a job with a salary of $2000. (d)Jennifer saves 10% of her monthly income. (e)Alex saves $1,000 a year. (f)Japan has a capital to labor ratio of 10 where China has a capital to labor ratio of 2.

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Question 17

Calculate the contribution to GDP that would be the result of each of the following transactions:
(a)The government purchases an airplane for $6 million.
(b)A citizen sells a used car for $6,000.
(c)A citizen sells a used car to a dealer for $6,000,who resells it to a consumer for $7,500.
(d)A citizen sells a bond for $1,000 that they bought last year for $600.
(e)The government issues a social security check for $1,250 (ignore the administrative costs of issuing the check).

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Quiz 8: Measuring the Aggregate Economy