Intermediate Macroeconomics 311 (Professor Gordon)

Quiz 1, October 12, 2007; 9AM

Note: This is a closed book assignment. You may use calculators.

YOUR NAME: ________________________________

Directions: Answer each of the following questions. Show all your work. Partial credit will be
given. Good Luck!

QUESTION 1

Use the following data to answer the questions below (all figures are in billions of dollars).

Item Amount
Government Purchases of goods and services 500
Depreciation (consumption of fixed capital) 200
Imports 500
Consumption expenditures 1800
Net fixed Investment 300
Corporate Income Taxes 45
Indirect Business Taxes 55
Social Security Contributions 100
Undistributed Corporate Profits 120
Government Transfer and Interest Payments 450
Personal Interest Payments 80
Personal Taxes 350
Changes in inventories 25
Exports 350
Receipts of factor income from the rest of the world 200
Payments of factor income to the rest of the world 400

(a) What is gross domestic product (GDP)? (3 points)

GDP = C + I + G + NX = 1800+(25+300+200)+500+(350-500)=2675

(b) What is domestic income? (3 points)

DI = GDP Depreciation Indirect Business Taxes = 2675-200-55=2420

(c) What is personal income? (4 points)

PI = DI Undistributed profits SS taxes Corporate Taxes + Govt. Transfers =

= 2420-120-100-45+450 = 2605
QUESTION 2

An economy produces only two consumption goods coconuts and bananas. Production and
price statistics for these goods in 2000 and 2001 are the following (all prices expressed in
dollars):

2000 2001
Prices:
1. Coconuts 2 2.5
2. Bananas 1 2
Quantities produced:
1. Coconuts 25 30
2. Bananas 40 25

What is the chain-weighted real GDP? (5 points)

2000 2001
Real GDP:
1. At fixed 2000 prices 90 85
2. At fixed 2001 prices 142.5 125

Real GDP growth (at fixed 2000 prices) = 85/90 = 0.944

Real GDP growth (at fixed 2001 prices) = 125/142.5 = 0.877
Chain-weighted real GDP = 0.944 0.877 = 0.909

QUESTION 3

In the table below are the figures corresponding to U.S. real GDP (all figures are in billions of
dollars):

2003:Q3 106.1
2003:Q4 106.5
2004:Q1 107.2
2004:Q2 108.1

(a) Calculate the annual real GDP growth rate for the period 2003:Q3 2004:Q2. (3 points)

Xt 108.1
100 ln 100 ln
X t s 106.1 2.489
xt
s 0.75

(b) How long it will take real GDP to double if it grows at the rate you found in part (a)? (2
points)
100 ln 2
s 27.84 years.
2.489
 Intermediate Macroeconomics 311 (Professor Gordon)
Quiz 1, October 12, 2007; 3PM

Note: This is a closed book assignment. You may use calculators.

YOUR NAME: ________________________________

Directions: Answer each of the following questions. Show all your work. Partial credit will be
given. Good Luck!

QUESTION 1

Use the following data to answer the questions below (all figures are in billions of dollars).

Item Amount
Government Purchases of goods and services 800
Depreciation (consumption of fixed capital) 200
Imports 600
Consumption expenditures 2000
Net fixed Investment 300
Corporate Income Taxes 45
Indirect Business Taxes 60
Social Security Contributions 150
Undistributed Corporate Profits 120
Government Transfer and Interest Payments 450
Personal Interest Payments 80
Personal Taxes 300
Changes in inventories 50
Exports 350
Receipts of factor income from the rest of the world 400
Payments of factor income to the rest of the world 400

a. What is gross domestic product (GDP)? (3 points)

GDP = C + I +G + NX = 2000+(50+300+200)+800+(350-600)=3100

b. What is domestic income? (3 points)

DI = GDP Depreciation Indirect Business Taxes = 3100-200-60=2840

c. What is personal disposable income? (4 points)

PDI = Personal Income Personal Taxes = (DI Undistributed profits SS taxes -

Corporate Taxes + Govt transfers) Personal Taxes
= (2840-120-150-45+450)-300 = 2675
QUESTION 2

In the table below are the figures corresponding to U.S. labor productivity:

2003:Q3 130.5
2003:Q4 131.5
2004:Q1 132.7
2004:Q2 134.0
2004:Q3 134.4
2004:Q4 135.1

a. Calculate the annual growth rate of productivity for the period 2003:Q3 2004:Q4. (3
points)

Xt 135.1
100 ln 100 ln
X t s 130.5 2.77
xt
s 1.25

b. How many years it will take real productivity to triple if it grows at the rate you found in part
a? (2 points)

100 ln 3
s 39.66 years
2.77

QUESTION 3

Assume that gross private domestic investment is $2,000 billion and the government is running a
$400 billion surplus. Also, assume that households and businesses are saving $200 billion. Find
the net exports (NX). Provide intuition for your answer. (5 points)

Magic equation is: T G =(I + NX) S.

Solving for NX, we get: NX = (T - G) + S I = 400 + 200 2000 = -1400

Since domestic resources (Govt surplus + savings=600) are not adequate to sustain domestic
investment (2,000), we need to import resources from other countries. Thus, net exports are
negative.