Bryon Gaskin Macroeconomics 201 Assignment for Unit 2

wallsgloomyΔιαχείριση

28 Οκτ 2013 (πριν από 3 χρόνια και 11 μήνες)

113 εμφανίσεις

Bryon Gaskin

Macroeconomics 201

Assignment for Unit 2



Macroeconomics
--
ECN 201


Assignment for Unit 2


Chapters 4
-
6 Taylor Text, 3rd edition



Remember to explain your responses thoroughly. Be careful most of the quest
ions have
several parts. Be sure to answer the complete question. Please answer every question to
complete the full assignment. There are no optional questions.




1. Given the information in the following table for three consecutive years in the U.S.


Economy, calculate the missing data.




Year

Nominal
GDP in
Billions

REAL
GDP in
billions

GDP
Deflator

Inflation
%change
in GDP
deflator

Real GDP
per capita
in 1996
dollars

Population
in
Millions

1996

7813

7813

100

1.8

31264.51

249.9

1997

8303.80
5

8165

101.7

1.7

32311.04

252.7

1998

8759.617

8516.058

102.86

1.14

33,344

255.4












































2. Suppose there are only three goods in the economy:



Year Good

Price
Quantity

________________________________________________________________________

2001 Apples $ 2.50 1000



Bananas $ 1.25 500


Computers $ 100



10





2002 Apples $ 3.50 800


Bananas $ 2.25 400



Computers $ 100 14



Item

Price

Quantity



Item

Price

Quantity




Apples

2.5

1000

2500


Apples

3.5

800

2800



Bananas

1.25

500

625


Bananas

2.25

400

900



Computers

1

100

1
00


Computers

1

14

14














Bryon Gaskin

Macroeconomics 201

Assignment for Unit 2



(A)

2001 NOMIAL GDP=

3225



2002 NOMIAL GDP=

3714














(B)

(percent change in GDP)










Using 2001 Prices





















3225


2001 Production









2514


2002 Production









22.05%

Decre
ase in Production



















Using 2002 Prices










4725

2001 Production









3714


2002 Production









21.40%

Decrease in production






























21.72%


(C )
Decrease in Real GDP from 2001 to 2002 (in other words

the there is
-
21.72% change in Real GDP from 2001 to 2002)
























(D)

GDP deflator = nominal GDP/real GDP or GDP deflator= 3325/2514= 1.28 *
100 = 128. GDP deflator for 2002 =128






A. Calculate nominal GDP for 2001 and 2002.




B. C
alculate the percentage change in GDP from 2001 to 2002 using 2001 prices and
2002


prices.




C. Calculate the percentage change in real GDP from 2001 to 2002 using your answers
from






D. What is the GDP deflator for 2002 if it equals 1.
0 in 2001?



3. Why does an increase in investment share in GDP require a decrease in some other
share
? Because when you add all the shares together the
must equal 1. The sum of all parts must not be greater
than the whole. In this case, the GDP is th
e whole and it
represents 1. The four shares (consumption, investment,
net exports and government purchases) make up the GDP. For
theoretical purposes if they were evenly divided as a part
of GDP, then 25% would go to each share. If for some
Bryon Gaskin

Macroeconomics 201

Assignment for Unit 2



reason ther
e was a 10% in investment, then there would have
to be a 10% decrease in another share.



4. How does the relationship between net exports and the exchange rate tie into the
negative relationship between interest rates and net expor
ts? To clarify, it is easiest to
show the relationship between all of them at the same time.


An increase in the interest rate will cause the exchange
rate to rise. This happens because, foreign investers can
earn more on their investments by placing them

in the
United States market. Think about it like a personal
savings account, if the interest rate is 3% on your account
in one bank but then another bank across the street or
across the country will offer 6%, then you will more likely
want to put your mo
ney in the other bank and take it out of
your current bank. So this increase in demand for the US
dollar caused by more competing resources, (in this case
foreign investors) for a limited amount of the US dollar,
puts pressure on the dollar to rise. When t
he exchange rate
rises, it makes the American dollar in compared to
currency X more valuable. When this happens, items
produced in other countries and sold in the US are less
expensive to buy in the US. At the same time, items made
in America but export
ed out, are more expensive. When this
happens, net exports will decrease. In other words, the
interest rate and the exchange rate are positively related.
The exchange rate and the interest rate are both negatively
related to net exports.


5. What is th
e difference between monetary and fiscal policy?


monetary policy is how the government goes about
controlling the supply of money and therefore the inflation


Fisical policy is how the government spends, borrows,
and taxes.




6. The following table show
s the amount of output that can be produced using different


combinations of labor and capita in a hypothetical economy with a given type of
technology.


For example, 650 units of output are produced when 200 units of labor and 100 units
of


capital are combined. This table is an example of a production function.




a. Hold capital constant at 100 while you increase labor. What happens to output? Out
put will increase. You have an diminishing increase with each increase in the amou
nt of
labor. For example Look the percent changes in production from one set of numbers to
the next.

Bryon Gaskin

Macroeconomics 201

Assignment for Unit 2



246

400

62.60%

400

532

33.00%

532

600

12.78%

600

618

3.00%



b. Now hold labor constant at 100 and raise the level of capital. What happens to
out
put? Out put would increase by a diminishing amount.

324

400

23.46%

400

452

13.00%

452

492

8.85%

492

526

6.91%




c. Finally, what happens when you raise labor and capital by the same amount? Out put
doubles. As indicated by the red lettered Produc
tion amounts in the modified chart
below.




Labor




50 100 150 200 250





50
200

324 432 528 618


100 246
400

532 650 760

Capital 150 2
78 452
600

734 858


200 304 492 654
800

936


250 324

526 700 856

1000






7. Suppose C = 660, I = 140, G = 200, and X = 0.

a.

What is GDP? 1000


Calculate each component's share of GDP.

i.

I= 14%

ii.

C= 66%

iii.

G= 20%

iv.

X= 0%


b. Suppose government spendin
g increases to 250 and GDP does not change. What is


government spending's share of GDP now? 45%


What is the new nongovernment share? 55%


c. Without doing any calculations, explain in general terms what happens to C/Y, X/Y,
I/Y


after the government spending increase in (b) above. Describe the mechanisms by
which


each of these changes happens.

There is government spending and nongovernment spending.
When government spending increases and GDP does not change,
Bryon Gaskin

Macroeconomics 201

Assignment for Unit 2



then
nongovrenment spending must decrease, because the sum
of the two must equal 1.

Y=C+I+G+X When we hold Y constant, which is what we are
doing my not increasing GDP in the above example, then if
we have a increase in government spending, then we will
have
an equal total decrease spread out amongst the other
shares that belong to the nongovernement shares. It is
the sum total of the decrease in each of these
nongovermental shares that will be equal to the percent
increase in government spending
.



8. Why
is the sum of all income equal to GDP?


Aggregate income is Equal to GDP. Aggregate income is
subdivided by 6 parts.

A.

Labor income

B.

Capital income

C.

Depreciation

D.

Indirect Business Tax

E.

Net income of foreigners

F.

Statistical discrepancy


Take a farmer who produce
s $500,000 a year.


He has 8 farm hands that he pays $25000 year. That
equals $200,000 in labor


He pays himself $75,000 year salary.



That equals $75,000 in labor


He then has 4 tractors that have depreciated




$10,000 in depreciaion


His total
production cost is





$285,000


Subtract is cost from what he produced



$500,000


Equals his profits






$215,000


Now if you add all of the labor cost as follows:

$25,000
+$25,000+25,000+25,000+25,000+25,000+25000+25,000+75,000

+

Depreication of $10
,000

+

Profits of $215,000

Equals aggregate income of $500, and also GDP.




9. Determine whether each of the following would be included in GDP, and explain why


or why not.

Bryon Gaskin

Macroeconomics 201

Assignment for Unit 2




a.
You buy a used CD from a friend. No, because it is not a
newly produ
ced good.


b. You buy a new CD from a music shop. Yes, because, you
have purchased a new produced good.


c. You cook your own dinner. No, because you are not
producing anything, however, the act of buying food, would
have been considered a part of GD
P.


d. You hire someone to cook your dinner. Yes, because
you are paying for a new performed service. Now if for
instance you contract someone to cook your dinner for a
year because you think that you will not be able to do it
yourself, and then you la
ter decide that you don’t need the
cooks services, and instead of not using his services, you
allow someone to buy out the cooks contract, then that
would not be counted towards GDP.