Chapter 5, Measuring a Nation's Income Video Solutions, Principle Of Macroeconomics

Problem 1

What components of GDP (if any) would each of the following transactions affect? Explain.
a. A family buys a new refrigerator.
b. Aunt Jane buys a new house.
c. Ford sells a Thunderbird from its inventory.
d. You buy a pizza.
e. Quebec repaves Highway 50
f. Your parents buy a bottle of French wine.
g. Honda expands its factory in Alliston, Ontario.

Oluwadamilola Ameobi

Numerade Educator

01:09

Problem 2

The "government purchases" component of GDP does not include spending on transfer payments such as Employment Insurance. Thinking about the definition of GDP, explain why transfer payments are excluded.

Anthony Han

Numerade Educator

02:26

Problem 3

Why do you think households' purchases of new housing are included in the investment component of GDP rather than the consumption component? Can you think of a reason why households' purchases of new cars should also be included in investment rather than in consumption? To what other consumption goods might this logic apply?

Alejandro Ruiz

Numerade Educator

01:12

Problem 4

As the chapter states, GDP does not include the value of used goods that are resold. Why would including such transactions make GDP a less informative measure of economic well-being?

Jesse Neumann

Numerade Educator

02:09

Problem 5

Below are some data from the land of milk and honey. $$\begin{array}{|c|c|c|c|c|}\hline & & \text { Quantity } & \text { Price } & \text { Quantity } \\\text { Year } & \begin{array}{c}\text { Price } \\\text { of Milk }\end{array} & \begin{array}{c}\text { of Milk } \\
\text { (litres) }\end{array} & \begin{array}{c}\text { of } \\\text { Honey }\end{array} & \begin{array}{c}\text { of Honey } \\\text { (litres) }\end{array} \\\hline 2013 & \$ 1 & 100 & \$ 2 & 50 \\\hline 2014 & 1 & 200 & 2 & 100 \\\hline 2015 & 2 & 200 & 4 & 100 \\\hline\end{array}$$
a. Compute nominal GDP, real GDP, and the GDP deflator for each year, using 2013 as the base year.
b. Compute the percentage change in nominal GDP, real GDP, and the GDP deflator in 2014 and 2015 from the preceding year. For each year, identify the variable that does not change. Explain in words why your answer makes sense.
c. Did economic well-being rise more in 2014 or $2015 ?$ Explain.

Breanna Ollech

Numerade Educator

01:29

Problem 6

Consider an economy that produces only chocolate bars. In year 1 , the quantity produced is 3 bars and the price is $\$ 4 .$ In year $2,$ the quantity produced is 4 bars and the price is $\$ 5 .$ In year 3 , the quantity produced is
5 bars and the price is $\$ 6 .$ Year 1 is the base year.
a. What is nominal GDP for each of these three years?
b. What is real GDP for each of these years?
c. What is the GDP deflator for each of these years?
d. What is the percentage growth rate of real GDP from year 2 to year $3 ?$

Christopher Dzorkpata

Numerade Educator

18:34

Problem 7

Consider the following data on Canadian GDP:
$$\begin{array}{|c|c|c|}\hline \text { Year } & \begin{array}{c}\text { Nominal GDP } \\\text { (in billions) }\end{array} & \begin{array}{c}
\text { GDP Deflator } \\\text { (base year }2007)\end{array} \\\hline 2013 & \$ 1893 & 111 \\\hline 2014 & \$ 1975 & 113 \\\hline
\end{array}$$
a. What was the growth rate of nominal GDP between 2013 and $2014 ?$ (Note: The growth rate is the percentage change from one period to the next.)
b. What was the growth rate of the GDP deflator between 2013 and $2014 ?$
c. What was real GDP in 2013 measured in 2007 prices?
d. What was real GDP in 2014 measured in 2007 prices?
e. What was the growth rate of real GDP between 2013 and $2014 ?$
f. Was the growth rate of nominal GDP higher or lower than the growth rate of real GDP? Explain.

Paul A.

California State Polytechnic University, Pomona

02:00

Problem 8

If prices rise, people's income from selling goods increases. The growth of real GDP ignores this gain, however. Why, then, do economists prefer real GDP as a measure of economic well-being?

Oluwadamilola Ameobi

Numerade Educator

01:31

Problem 9

Revised estimates of Canadian GDP are usually released by Statistics Canada near the end of each month. Find a newspaper article that reports on the most recent release, or read the news release yourself at www.statcan.gc.ca, the website of Statistics Canada. Discuss the recent changes in real and nominal GDP and in the components of GDP.

Jesse Neumann

Numerade Educator

00:20

Problem 10

Goods and services that are not sold in markets, such as food produced and consumed at home, are gene rally not included in GDP. Can you think of how this might cause the numbers in the second column of Table 5.4 to be misleading in a comparison of the economic well-being of Canada and India? Explain.

Christopher Dzorkpata

Numerade Educator

06:28

Problem 11

The participation of women in the Canadian labour force has risen dramatically since $1970 .$
a. How do you think this rise affected GDP?
b. Now imagine a measure of well-being that includes time spent working in the home and taking leisure time. How would the change in this measure of well-being compare to the change in GDP?
c. Can you think of other aspects of well-being that are associated with the rise in women's labour-force participation? Would it be practical to construct a measure of well-being that includes these aspects?

Oluwadamilola Ameobi

Numerade Educator