Solved exercises macroeconomics
Solved Exercises: Macro-Ch(23) Fall 2014
Answer the following questions:
1. In the year 2005, the economy produces 100 loaves of bread that they sell for $2 each. In the year 2006, the economy produces 200 loaves of bread that sell for $ 3 each.
a. Calculate nominal GDP, real GDP, and GDP Deflator for each year (Use 2005 as the base year).
b. By what percentage do nominal GDP and Real GDP rise from one year to the next?
c. Calculate the rate of inflation between 2005 and 2006?
Answer:
a. Year 2005 2006 Nominal GDP $200 $600 Real GDP 200 400 GDP Deflator 100 150
b. Percentage change in Nominal GDP(2005-6) = 600-200 x 100 = 200% 200
Percentage change in Real GDP(2005-6) = 400-200 x 100= 100% 200
c. Rate of Inflation (2005-2006)= 150-100 x 100 = 50% 100
2. Why is it desirable for a country to have a large GDP? Give an example of something that would raise GDP and yet be undesirable?
Answer:
GDP measures the economic well-being of a country. It is also one of the most important yardsticks used to measure economic development of a country. It is one of the most important objectives that an economy wants to achieve in order to be conside5tred an advanced country economically.
Production of illegal products such as guns and drugs are products that would raise GDP if included in GDP measurement yet undesirable.
3. A farmer grows wheat, which he sells to a miller for $ 100. The miller turns the wheat into flour, which he sells to a baker for $ 150. The baker turns the wheat into bread, which he sells to consumers for $ 180. Consumers eat the bread.
What is GDP in this economy? Explain.
Answer:
GDP equals $180 as it represents the market value of final products produced inside the country, sold legally in markets and ready for final consumption by the ultimate consumer. Bread is the only product that fulfills all the above characteristics, that’s
Answer the following questions:
1. In the year 2005, the economy produces 100 loaves of bread that they sell for $2 each. In the year 2006, the economy produces 200 loaves of bread that sell for $ 3 each.
a. Calculate nominal GDP, real GDP, and GDP Deflator for each year (Use 2005 as the base year).
b. By what percentage do nominal GDP and Real GDP rise from one year to the next?
c. Calculate the rate of inflation between 2005 and 2006?
Answer:
a. Year 2005 2006 Nominal GDP $200 $600 Real GDP 200 400 GDP Deflator 100 150
b. Percentage change in Nominal GDP(2005-6) = 600-200 x 100 = 200% 200
Percentage change in Real GDP(2005-6) = 400-200 x 100= 100% 200
c. Rate of Inflation (2005-2006)= 150-100 x 100 = 50% 100
2. Why is it desirable for a country to have a large GDP? Give an example of something that would raise GDP and yet be undesirable?
Answer:
GDP measures the economic well-being of a country. It is also one of the most important yardsticks used to measure economic development of a country. It is one of the most important objectives that an economy wants to achieve in order to be conside5tred an advanced country economically.
Production of illegal products such as guns and drugs are products that would raise GDP if included in GDP measurement yet undesirable.
3. A farmer grows wheat, which he sells to a miller for $ 100. The miller turns the wheat into flour, which he sells to a baker for $ 150. The baker turns the wheat into bread, which he sells to consumers for $ 180. Consumers eat the bread.
What is GDP in this economy? Explain.
Answer:
GDP equals $180 as it represents the market value of final products produced inside the country, sold legally in markets and ready for final consumption by the ultimate consumer. Bread is the only product that fulfills all the above characteristics, that’s