Due January 23, 2013
1.Classify each of the following items as included or not included in GDP. Give an explanation for those that you judge as not included. State when applicable, the expenditure category in which each good is included.
a. The purchase of copy paper by PepsiCo, which is used by the company staff. Answer: This case is not included in GDP, because it is an intermediate goods.
b. The purchase of an electronic handheld organizer by a sales manager to keep track of clients. Answer: This case is included in GDP, because it belongs to Produced within a country.
c. The purchase of a new helicopter by the Canadian military. Answer: This case is included in GDP, because it belongs to Produced within a country. d. An increase in Compaq Computers’ inventory of unsold personal computers. Answer: This case is included in the GDP, because it belongs to market value. e. A deposit in your savings account as a result of a judgment in a lawsuit. Answer: This case is not included in GDP, because it is not any goods or services value in the market. f. The sale of a used computer.
Answer: this case is not included in GDP, because used computer is second hand goods, and it’s GDP included in the years of it produced. g. Your donation of a used computer to a local elementary school. Answer: This case is not included in GDP, because donation is not a part of the economic matter.
h. The purchase by a German resident in Germany of a ceiling fan produced in Canada. Answer: This case is not included in GDP, because it is not finals goods and services.
2.Using the information in the table below, calculate GDP.
Item| Amount(billions of dollars)|
Consumption expenditure| 800|
Government expenditure| 200|
Answer: GDP as the sum of consumption expenditure, investment, government expenditure on goods and services, and net exports. Therefore, GDP equals to C+I+G+(X-M). GDP=$800+$400+$200+($50-$75)+$100=$1375 billions
3.The table below gives some of the items in a country’s national accounts.
(billions of dollars)|
Consumption expenditure| 4.97|
Government expenditure| 1.37|
Net exports| 0.08|
Wages, salaries, and supplementary labour income| 4.20| Interest and investment income| 0.90|
Profits of corporations and government enterprises| 0.67| Income from farms and unincorporated businesses| 0.11|
a. Use the expenditure approach to calculate GDP.
Answer: GDP equals to C+I+G+(X-M) =$4.97+$1.14+$1.37+($-0.08)=$7.4 billions b. Calculate net domestic income at factor cost.
Answer: Net domestic income =$4.20+$0.90+$0.67+$0.11=$5.88 billions c. Calculate GDP minus net domestic income at factor cost. Answer: $7.4-$5.88=$1.52billions
d. Calculate indirect taxes less subsidies.
Answer: 7.4-0.89=6.51 6.51-5.88=0.63billions
4. An island economy produces only lamps and books. The table gives the quantities produced and the prices in 2001, and the quantities produced and the prices in 2002.
Item| 2001| 2002|
| Quantity| Price| Quantity| Price|
Lamps| 90| $15| 100| $20|
Books| 20| $20| 25| $25|
The base year is 2001. Calculate:
a. Nominal GDP in 2001.
Answer: Nominal GDP =(90 lamps $15) + (20 books $20) = $1350+$400=$1750 b. Nominal GDP in 2002.
Answer: Nominal GDP =(100 lamps $20) + (25 books $25) = $2000+$625=$2625 c. The value of 2002 production in 2001 prices.
Answer: (100 lamps $15) + (25 books $20) = $1500+$500=$2000 d. Percentage increase in production when valued at 2001 prices. Answer: the production increased from $1750 to $2000. [($2000 $1750)/$1750] x 100=14.3 percent
e. The value of 2001 production in 2002 prices.
Answer: (90 lamps...