## Answered: - Suppose that you are given the following data (in billions of

Suppose that you are given the following data (in billions of dollars) for the country of Obamaland:

???????????

??????????? Consumption?????????????????????????????????????????????????? 11,100

??????????? Wages???????????????????????? ? ????????? ??????????????????????? ??8,600

??????????? Investment????????????????????????????? ? ????????????????????? ??2,100

??????????? Rental Payments???????????????????? ? ????????????????????? ?????500

??????????? Exports??????????????????????????????????? ? ????????????????????? ??2,200

??????????? Imports??????????????????????????????????? ?????????????????????? ??2,800

??????????? Government spending on goods and services ? 4,500

??????????? Government transfer payments?????????????????????? ? 2,000

From the data provided above, compute GDP by the components of spending.

ECO 230-05/06

FALL 2015

Due: October 15

PROBLEM SET NUMBER FIVE

1. Suppose that Fruitland produces two goods, apples and bananas. The following table shows

the prices and quantities for the goods over a three-year period.

Apples

Year

2012

2013

2014

Price

\$3

\$6

\$4

Bananas

Quantity

40

60

70

Price

\$3

\$5

\$4

Quantity

30

40

50

a. What is the nominal GDP for year 2013? What is the nominal GDP for year 2014?

b. Use 2012 as the base year. What is the real GDP for year 2013? What is the real GDP for year

2014?

c. What is the GDP deflator for year 2013? What is the GDP deflator for year 2014?

d. What is the inflation rate between 2013 and 2014?

2. For each of the following events, explain whether it is included in the measure of U.S. GDP.

a. A U.S. fast food company purchases bun bread in order to make hamburgers.

b. Murray State University hires more professors.

c. Godiva Chocolatier, a Belgian chocolates manufacturer, produces some chocolates at a plant in

the United States.

d. Toyota makes SUVs in Japan and sells in the United States.

e. Some cocaine is made in New York City.

f. The Dow Jones Index reaches a record high and more people spend money to buy stocks.

g. The General Motor Company recalls cars produced during 2003 and 2013, and puts newlyproduced airbags on these old vehicles.

3. Suppose that you are given the following data (in billions of dollars) for the country of

Obamaland:

Consumption

11,100

Wages

8,600

Investment

2,100

Rental Payments

500

Exports

2,200

Imports

2,800

Government spending on goods and services 4,500

Government transfer payments

2,000

From the data provided above, compute GDP by the components of spending.

4. Lorenzo and Neha Stewart live in Swarthmore, PA. Neha?s father, Sam, lives in Sweden. For

each of the following transactions, identify whether it is included in the calculation of U.S. GDP

as part of consumption (C), investment (I), government spending (G), exports (X) or imports

(M).

a. Sam in Sweden orders a bottle of maple syrup made in U.S. from the producer's website.

b. Neha gets a new video camera made in the United States.

c. Lorenzo's employer upgrades all of its computer systems using U.S.-made parts.

e. The local government expands the runways at Philadelphia International Airport, which is just

a few miles from Lorenzo and Neha's house.

5. (BONUS QUESTION) Suppose that the economy of Stewland produces nothing but beef stew.

Beef stew is made with beef, carrots, potatoes and flour. The following activities were observed

A rancher sold \$1000 of cows to a butcher.

A butcher sold \$1500 of beef to a beef stew factory.

A carrot farmer sold \$200 of carrots to a beef stew factory.

A potato farmer sold \$300 of potatoes to a beef stew factory.

A wheat farmer sold \$100 of wheat to a miller.

A miller sold \$200 of flour to a beef stew factory.

A beef stew factory made \$3000 worth of beef stew and sold to final consumers.

Read the following blog and calculate the GDP of Stewland using value-added approach. (By

doing this way you can see how much each sector has contributed to the GDP.)

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