Problem 1 - Use the national income data in the table below, compute (a) GDP, (b) NDP, and (c) NI using the expenditure approach.
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National Income Accounting Data
|
Amount (billions)
|
|
Compensation of Employees
|
$2684
|
|
U.S. Exports of goods and services
|
551
|
|
Consumption of fixed capital
|
480
|
|
Government purchases
|
925
|
|
Taxes on production and imports
|
122
|
|
Net private domestic investment
|
233
|
|
Transfer payments
|
12
|
|
U.S. imports of goods and services
|
1674
|
|
Personal Taxes
|
81
|
|
Net foreign factor income
|
4
|
|
Personal consumption expenditures
|
3012
|
|
Statistical discrepancy
|
0
|
Problem 2 - Compare a $100,000 median family income in 1980 to the same income in 1990, 2000, and 2010. What are the differences in the available products? What are the differences in the quality of those products? Considering this, in which of those years would you rather live? Why?
Problem 3 - Assume that the consumption schedule for a private open economy is such that consumption C = 20 + 0.80Y. Assume further that planned investment Ig and net exports Xn are independent of the level of real GDP and constant at Ig = 40, G =20 and Xn = 10. Recall also that, in equilibrium, the real output produced (Y) is equal to aggregate expenditures: Y = C + Ig + G+ Xn.
a. Calculate the equilibrium level of income or real GDP for this economy.
b. What happens to equilibrium Y if G changes to 20? What does this outcome reveal about the size of the multiplier? What does this outcome reveal about the impact of fiscal policy?
Problem 4 - Using the hypothetical economy data in the table below, calculate the aggregate demand and supply, as well as its price level.
|
Amount of Real GDP Demanded, Billions
|
Price Level (Price Index)
|
Amount of Real GDP Supplied, Billions
|
|
$360
|
600
|
$1000
|
|
520
|
500
|
820
|
|
600
|
400
|
600
|
|
840
|
300
|
400
|
|
1020
|
100
|
300
|
Then address the following:
a) What is the equilibrium price level and the equilibrium level of real output in this hypothetical economy? Use Excel to graph both the aggregate demand and aggregate supply curves. Can there be equilibrium level of output at below full employment?
b) At what price level will aggregate supply equal aggregate demand? At what price level will demand fall below aggregate supply? If given a price level of 300, will aggregate demand exceed supply?
c) If the aggregate demand schedule shifted by $20 billion to the right at every level, what would be the new equilibrium level of income?