CIX1002: Principles of Macroeconomics

Tutorial: Tuesday 8.00-9.00a.m

Group: T1G1
Name: Matric No:
1. Eric Goh Jian Jui CIC150010
2. Tan Hui Sing CIC150033
3. Chang Ling Shan CIC150007
4. Kang Huang Ting CIC150012
5. Kho Mei Lian CIC150020
Presentation of Tutorial
Question Chapter 4
Question 8
Use the following data to work Problems 8 and 9. The table
lists some macroeconomic data for the United States in
2008.
Item Billions of dollars
Wages paid to labor 8,000
Consumption expenditure 10,000

Net operating surplus 3,200

Investment 2,000
Government expenditure 2,800
Net exports -700
Depreciation 1,800

Calculate U.S. GDP in 2008.

Solution:
Item Symbol Billions of
dollars
Consumption of C 10,000
expenditure
Investment I 2,000
Government G 2,800
Expenditure
Net exports X-M -700
GDP Y 14,100
Question 9
Explain the approach (expenditure or income) that
you need to calculate GDP.

Solution:
The approach used to calculate GDP is the
expenditure approach. The expenditure approach
measures GDP as the sum of consumption
expenditure, investment, government expenditure on
goods and services and net exports.
Question 10
Use the following data to work Problems 10 and 11.

The national accounts of Parchment Paradise are kept on

(you guessed it) parchment. A fire destroys the statistics
office. The accounts are now incomplete but they contain
the following data.
• GDP (income approach) : $2,900
• Consumption expenditure : $2,000
• Indirect taxes less subsidies : S100
• Net operating surplus : $500
• Investment : $800
• Government expenditure : $400
• Wages : $2,000
• Net exports : -$200
Solution:
GDP = C+ I+ G+ (X-M)
= 2000 + 800 + 400 + (-700)
=$3000
Item Symbol Amount ($)
Consumption of C 2,000
expenditure
Investment I 800
Government G 400
Expenditure
Net exports X-M -200
GDP Y 3,000
Wages
Item
SSO Amount ($)
2,000
Net operating surplus 500
Net domestic income at 2,500
factor cost
Indirect taxes less subsidies 100
Net domestic income at 2,600
market prices
Depreciation ?
GDP (Income approach) 2,900

Depreciation = 2,900 - 2,600

= $300
Question 11
Calculate net domestic income at factor cost and statistical
discrepancy.

Solution:
Net domestic income at factor cost
= Wages + Net operating surplus
= $2,000 + $500
= $2,500

Statistical discrepancy
= GDP (expenditure approach) – GDP (income approach)
= $3,000 - $2,900
= $100
Question 12
Use the following data to work Problems 12 and 13.

Tropical Republic produces only bananas and

coconuts. The base year is 2010, and the table gives
the quantities produced and the prices.
Quantites 2010 2011
Bananas 800 bunches 900 bunches
Cocounuts 400 bunches 500 bunches

Prices 2010 2011

Bananas $2 a bunch $4 a bunch
Cocounuts $10 a bunch $5 a bunch

Calculate nominal GDP in 2010 and 2011.

Solution:
In 2010
Item Quantity Price ($) Expenditure ($)
(bunches)
Bananas 800 2 1,600
Coconuts 400 10 4,000
Nominal GDP in 2010 5,600

In 2011
Item Quantity Price ($) Expenditure ($)
(bunches)
Bananas 900 4 3,600
Coconuts 500 5 2,500
Nominal GDP in 2011 6,100
Question 13
Calculate real GDP in 2011 expressed in base-year
prices.

Solution:
Quantities of 2011 valued at prices of 2010
Item Quantity Price ($) Expenditure ($)
(bunches) (Year2010)
Bananas 900 2 1,800
Coconuts 500 10 5,000
Real GDP in 2011 6,800
Question 20
Classify each of the following items as a final good or
service or an intermediate good or service and identify
which is a component if consumption expenditure,
investment, or government expenditure on goods and
services:
• Banking services bought by Google.
• Security system bought by the New York Stock
Exchange.
• Coffee beans bought by Starbucks.
• New coffee grinders bought by Starbucks.
• Starbuck’s grande mocha frappuccino bought by a
student.
• New battle ship bought by the U.S. Navy.
Solution:

• Banking services bought by Google.

 Intermediate good or service
 Not a component of GDP

• Security system bought by the New York Stock

Exchange.
 Final good or service
 Government expenditure

• Coffee beans bought by Starbucks.

 Intermediate good or service
 Not a component of GDP
• New coffee grinders bought by Starbucks.
 Final good or service
 Investment

• Starbuck’s grande mocha frappuccino bought by

a student.
 Final good or service
 Consumption expenditure

• New battle ship bought by the U.S. Navy.

 Final good or service
 Government expenditure
Question 21
Use the figure in Problem 3 to work Problem 21 and 22.

A B
HOUSEHOLDS GOVERNMENTS

FACTOR GOODS C
MARKETS D MARKETS
E

D
B REST OF THE
A C
FIRMS WORLD
E
In 2009, flow A was $1,000 billion, flow C was
$250 billion, flow B was $650 billion, and flow E
was $50 billion. Calculate investment.

Solution:
Y= C + I + G + (X – M)
A= B + D + C + E
1,000 = 650 + D + 250 + 50
D= 50

Investment = $50 billions

Question 22
In 2010, flow D was $2 trillion, flow E was -$1 trillion,
flow A was $10 trillion, and flow C was $4 trillion.
Calculate consumption expenditure.

Solution:
Y = C + I + G + (X – M)
A=B+D+C+E
10= B + 2 + 4 – 1
B=5

Consumption expenditure = $5 trillions

Question 29
Use the following data to work Problems 29 and 30.

An economy produces only apples and oranges. The

base year is 2012 and the table gives the quantities
produced and the prices.
Quantites 2012 2013
Apples 60 160
Oranges 80 220

Prices 2012 2013

Apples $0.50 $1.00
Oranges $0.25 $2.00

Calculate nominal GDP in 2012 and 2013.

Solution:
In 2012
Item Quantity Price ($) Expenditure ($)
Apples 60 0.50 30
Oranges 80 0.25 20
Nominal GDP in 2012 50

In 2013
Item Quantity Price ($) Expenditure ($)
Apples 160 1.00 160
Oranges 220 2.00 440
Nominal GDP in 2013 600
Question 30
Calculate real GDP in 2012 and 2013 expressed in
base-year prices.

Solution:
Quantities of 2012 valued at prices of 2012
Item Quantity Price ($) Expenditure ($)
Apples 60 0.50 30
Oranges 80 0.25 20
Real GDP in 2012 50

Quantities of 2013 valued at prices of 2012

Item Quantity Price ($) Expenditure ($)
Apples 160 0.50 80
Oranges 220 0.25 55
Real GDP in 2013 135