Free Trade and Inflation Uncertainty Experiment

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Whitman College
Econ 102
Exam 2
March 12, 2009

Write all answers on the exam. Show all of your work. The exam ends at 11:50.

1. (20pts) For each of the following transactions, identify whether it appears in the calculation of the United States Gross Domestic Product (GDP) as part of consumption (C), investment (I), government purchases (G), exports (EX), or imports (IM). If all or part of the transaction needs to be accounted for in more than one category, check each applicable box. If the transaction is not part of the calculation of U.S. GDP, then don’t check any box. In these examples, Darnell and Hilary live and work in Pennsylvania. Hilary’s father, Emil, lives and works in Sweden.

|Transaction |C |I |G |EX |IM | |Darnell buys a bottle of French wine. | | | | | | |Hilary’s father orders a bottle of Vermont maple syrup to be shipped to him in Sweden. | | | | | | |The Federal Aviation Administration expands the runways at the Philadelphia International airport using | | | | | | |materials made in the U.S. | | | | | | |Darnell’s employer upgrades its office computer systems using components made in Germany. | | | | | | |Hilary gets a haircut from her local barber. | | | | | | |Nike, an American company, produces a pair of sneakers at a plant in Vietnam. It sells the shoes in | | | | | | |Japan. | | | | | | |Hilary’s father mails her a present of Swedish chocolates. | | | | | | |Hilary makes a vase for herself using a cherry tree from her property. | | | | | | |Nike, an American shoe company, produces a pair of sneakers at a plant in Vietnam. It sells the shoes | | | | | | |to Darnell. | | | | | | |Darnell buys a latte from a Starbucks store near his home in Pennsylvania. Starbucks is an | | | | | | |American-owned company. | | | | | | |Emil buys a latte from a Starbucks store near his home in Sweden. | | | | | | |Hilary sells Starbucks stock to Darnell. | | | | | | |Hilary builds a home and sells it to Darnell. | | | | | | |Darnell sells his old home to his neighbor. | | | | | | |General Motors, an American company, builds several SUVs in Detroit and then puts them into its | | | | | | |inventory. | | | | | |

2. (a) (10pts) Consider golfers who led the PGA in winnings at different points in time. The table below shows the nominal winnings for some of these golf champions. Convert these nominal winnings into 2006 dollars, and fill in the table....
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