Extra exercises

Tatinana Monserrat Penella

Questions for Review p.221 Ex1

1. Explain why an economy’s income must equal its expenditure.

The task of gross domestic product (GDP) is judging whether the

economy is doing well or poorly it is normal to look at the total income so
to know what the economy is hearing . the measure of GDP is the total
income of everyone in the economy and the total expenditure on the
economy`s output of goods and services. The total income and the total
expenditure are really the same. The reason of this is that an economy is
income is the same as the expenditure is simply that every transaction
has two parties a buyer and a seller. For example if you get any
transaction will always contribute equally to the economy`s income and
to its expenditure. GDP whether measured as total income or total
expenditure. Whether a household government or firms buys a good or a
service the transaction will always be the buyer and the seller so for the
economy expenditure and income are always the same.

Problems and Applications p.221, Ex1

1. What components of GDP (if any) would each of the following

transactions affect? Explain.
a. A family buys a new refrigerator.
This transaction will affect GDP of the following way; GDP in this case
will increase its income and its expenditure because is a service
provided.
 b. Aunt Jane buys a new house.
This transaction will affect GDP of the following way; GDP in this
transaction will increase its expenditure and its income because is an
investment.

c. Ford sells a Thunderbird from its inventory.

This transaction will affect GDP of the following way; in this case the
transaction will not have any affect in GDP.

d. You buy a pizza.

This transaction will affect GDP of the following way; GDP in this
transaction will increase because is a service provided.

e. California repaves Highway 101.

This transaction will affect GDP of the following way; GDP in this case
will decrease because is a government tax.

f. Your parents buy a bottle of French wine.

This transaction will affect GDP of the following way; GDP in this
transaction will increase its expenditure and its income because is a
net export.
g. Honda expands its factory in Marysville, Ohio.
This transaction will affect GDP of the following way; GDP in this
transaction will not have any impact because is a company expending.

Problems and Applications p.222, Ex6

6. Consider the following data on U.S. GDP: NOMINAL GDP GDP

DEFLATOR YEAR (IN BILLIONS) (BASEYE AR 1992) 1996 7,662 110
1997 8,111 112
a. What was the growth rate of nominal GDP between 1996 and
1997? (Note: The growth rate is the percentage change from one
period to the next.)

b. What was the growth rate of the GDP deflator between 1996 and
1997?

c. What was real GDP in 1996 measured in 1992 prices?

d. What was real GDP in 1997 measured in 1992 prices?

e. What was the growth rate of real GDP between 1996 and 1997?

f. Was the growth rate of nominal GDP higher or lower than the
growth rate of real GDP? Explain.