Econ101Hw2QuesAns 1 1 
ECN 101 Intermediate Macroeconomic Theory | Winter 2013
Problem Set #2: Long-Term Economic Performance
Revised: January 31, 2013 Due: beginning of class Wednesday January 30, 2013
1. National accounts in Blenderville (35 points). Jimmy Buffett has decided to apply for membership in the European Union on behalf of his newly sovereign nation,
Blenderville. As part of his application, he must provide the EU technocrats with a complete set of national accounts. You have been hired as the Chief National
Accountant. Your first day on the job, you receive an official Coral Reefer CrewTM t-shirt and the following information about local economic activity:
• Local Cheeseburger in ParadiseTM cafes sold $50,000 worth of cheeseburgers to local consumers. Their expenses were: imported beef and sesame seeds
($7,000), locally produced catsup ($10,000), wages and benefits ($20,000), and rent ($3,000). Hint: you will need to compute the profit earned by the cafes. • Local tomato growers sold $8,000 worth of tomatoes to domestic catsup producers and exported another $2,000 to the US. They paid land rent
($1,000) and wages ($9,000).
• Local producers of the Blenderville Frozen Concoction MakerTM sold $100,000 worth of blenders. 40% were exported to Europe, the remainder to local consumers. Their expenses were $15,000 worth of imported metal, $15,000 for a new CNC machine imported from Germany, and $70,000 in wages.
• The domestic catsup industry sold $10,000 worth of product to local cafes.
They purchased $8,000 worth of tomatoes from domestic growers and paid
$2,000 in wages.
• The newly-formed government collected $10,000 in taxes from its citizens and paid $10,000 to government regulators, who oversee food and beverage safety. You mission is to use this raw data to construct national income and product accounts for Blenderville. Specifically:
(a) Compute GDP and its expenditure components (consumption, investment, government purchases of goods and services, exports, and imports).
Problem Set #2: Long-Term Economic Performance
Revised: January 31, 2013 Due: beginning of class Wednesday January 30, 2013
1. National accounts in Blenderville (35 points). Jimmy Buffett has decided to apply for membership in the European Union on behalf of his newly sovereign nation,
Blenderville. As part of his application, he must provide the EU technocrats with a complete set of national accounts. You have been hired as the Chief National
Accountant. Your first day on the job, you receive an official Coral Reefer CrewTM t-shirt and the following information about local economic activity:
• Local Cheeseburger in ParadiseTM cafes sold $50,000 worth of cheeseburgers to local consumers. Their expenses were: imported beef and sesame seeds
($7,000), locally produced catsup ($10,000), wages and benefits ($20,000), and rent ($3,000). Hint: you will need to compute the profit earned by the cafes. • Local tomato growers sold $8,000 worth of tomatoes to domestic catsup producers and exported another $2,000 to the US. They paid land rent
($1,000) and wages ($9,000).
• Local producers of the Blenderville Frozen Concoction MakerTM sold $100,000 worth of blenders. 40% were exported to Europe, the remainder to local consumers. Their expenses were $15,000 worth of imported metal, $15,000 for a new CNC machine imported from Germany, and $70,000 in wages.
• The domestic catsup industry sold $10,000 worth of product to local cafes.
They purchased $8,000 worth of tomatoes from domestic growers and paid
$2,000 in wages.
• The newly-formed government collected $10,000 in taxes from its citizens and paid $10,000 to government regulators, who oversee food and beverage safety. You mission is to use this raw data to construct national income and product accounts for Blenderville. Specifically:
(a) Compute GDP and its expenditure components (consumption, investment, government purchases of goods and services, exports, and imports).