Practice Questions 1-
1. Use the following information to answer this set of questions.
|
Year
|
Real GDP in 1990 Prices
|
Price Index
|
|
1990
|
400
|
100
|
|
2000
|
500
|
150
|
a. Calculate the nominal (or money) GDP for 1990 and 2000 using the above information.
b. Calculate Real GDP in year 2000 prices using the above data and your calculations in part (a).
2. Use the following information to calculate the labor cost per unit of output in each of the following cases.
Wage rate Initially = $10 per hour
Output per Labor Hour Initially = 10 units of output
|
Productivity Gain
|
Wage Increase
|
Labor cost/Unit of Output
|
|
0%
|
0%
|
i)
|
|
0%
|
10%
|
ii)
|
|
0%
|
20%
|
iii)
|
|
10%
|
0%
|
iv)
|
|
10%
|
10%
|
v)
|
|
10%
|
20%
|
vi)
|
|
20%
|
0%
|
vii)
|
|
20%
|
10%
|
viii)
|
|
20%
|
20%
|
ix)
|
a. Fill in the above table i) through ix).
b. What is the relationship between labor cost per unit of output and productivity? In your answer explain when labor cost per unit of output decreases and when labor cost per unit of output increases.
c. Can real wages in an economy increase if there are no productivity gains? Explain your answer.
d. How can labor costs per unit of output be reduced?
3. Use the following assumption and information to answer this set of questions.
Assumptions:
i. There is no government spending or taxation in this model.
ii. There is no international trade: i.e., this is a closed economy.
iii. The level of business saving in this model is equal to zero.
iv. Prices are constant in this model.
Information about Econoland's economy (all figures are in dollars):
|
|
Year 1 (January 1-December 31)
|
Year 2 (January 1-December 31)
|
|
Production of New Buildings
|
10
|
10
|
|
Production of New Equipment
|
20
|
20
|
|
Production of Consumer Goods
|
220
|
180
|
|
Purchases of Consumer Goods
|
180
|
220
|
|
Estimated Depreciation on Existing Buildings
|
20
|
20
|
|
Estimated Depreciation on Existing Equipment
|
20
|
20
|
|
Inventories of Consumption Goods as of January 1
|
60
|
100
|
|
Inventories of Consumption Goods as of December 31
|
100
|
60
|
a. In the first year, there are $220 worth of production of consumer goods and only $180 worth of purchases of consumer goods. How do you explain the difference in these two numbers?
b. Explain the change in inventories that occurs during year 2.
c. Compute the following from the above information:
|
|
Year 1
|
Year 2
|
|
GDP
|
|
|
|
i) Consumption
|
|
|
|
ii) Gross Investment
|
|
|
|
Net Domestic Product (NDP)
|
|
|
|
i) Consumption
|
|
|
|
ii) Net Investment
|
|
|
Note: GDP in this example is composed of consumption and gross investment while net domestic product is composed of consumption and net investment (gross investment minus depreciation).
d. Is it possible for a country to have net investment less than zero during a given time period? Explain your answer.
4. The National Income and Product Accounts (NIPA) provide measures of economic performance. These measures do have limitations. Please devise an improvement to NIPA for each of the following situations.
a. Firms seeking to increase their production have speeded up their assembly lines. Although this has increased GDP it has also led to poorer working conditions and higher injury rates. How would you improve the GDP accounts so that this information is factored into the economic statistics?
b. When households and businesses heat their buildings to higher temperatures this increases consumption of electricity and hence GDP. When households and businesses cool their buildings in hot weather to cooler temperatures this also increases electricity consumption and raises GDP. How could the GDP accounts be altered to more accurately reflect our national welfare with regard to this scenario?
c. An increase in lawlessness causes people to spend more on protection: they buy security systems, alarms, dead bolts and weapons. These purchases increase GDP at the same time individual welfare decreases because of the increase in criminal activity. How would you alter the GDP accounts to more accurately reflect national welfare in this scenario?
5. Often in economics we consider the percentage changes in variables. For instance, the percentage change in GDP from one year to the next provides a measure of the growth rate of the economy during that year; or the percentage change in the CPI from one year to the next provides a measure of the inflation rate for the economy during that period of time. Your text reviews is Chapter 2 two basic rules for working with percentage changes: 1) the percentage change in the product of two variables can be approximated by summing the percentage changes in each of the two variables; and 2) the percentage change in a ratio is the percentage change in the numerator minus the percentage change in the denominator. This problem allows you to practice this technique and compare your approximation with the actual calculation.
a. Use the table below to answer this question:
|
Year
|
Nominal GDP=PY
|
P=GDP deflator
|
Y=Real GDP
|
|
2000
|
100
|
1.00
|
100
|
|
2001
|
|
1.05
|
110
|
|
2002
|
124.2
|
|
115
|
|
2003
|
132
|
1.10
|
|
i. Fill in the missing cells in the above table.
ii. From the above data, fill in the following table:
|
Year
|
Percentage Change in Nominal GDP Using Data from the Nominal GDP column
|
Percentage Change in P Using Data from the P column
|
Percentage Change in Y Using Data from the Y column
|
Percentage Change in Nominal GDP Using Approximation Technique
|
|
2000 to 2001
|
|
|
|
|
|
2001 to 2002
|
|
|
|
|
|
2002 to 2003
|
|
|
|
|
b. Use the table below to answer this question:
|
Year
|
GDP per person
|
Y=Real GDP
|
L=population
|
|
2000
|
|
$100 billion
|
100 million
|
|
2001
|
$1200/person
|
$150 billion
|
|
|
2002
|
$1500/person
|
|
130 million
|
|
2003
|
$1200/person
|
|
125 million
|
i. Fill in the missing cells in the table.
ii. Now complete the following table.
|
Year
|
Percentage Change in GDP/person Using Data from the GDP/person column
|
Percentage Change in Real GDP Using Data from the Real GDP column
|
Percentage Change in Population Using Data from the L column
|
Percentage Change in GDP/person Using Approximation Technique
|
|
2000 to 2001
|
|
|
|
|
|
2001 to 2002
|
|
|
|
|
|
2002 to 2003
|
|
|
|
|