🎉 Announcing Numerade's $26M Series A, led by IDG Capital!Read how Numerade will revolutionize STEM Learning # Principles of Economics ## Gregory Mankiw ## Chapter 23 ## Measuring a Nation's Income ## Educators SA ### Problem 1 What components of GDP (if any) would each of the following transactions affect? Explain. a. Uncle Henry buys a new refrigerator from a domestic manufacturer. b. Aunt Jane buys a new house from a local builder. c. The Jackson family buys an old Victorian house from the Walker family. d. You pay a hairdresser for a haircut. e. Ford sells a Mustang from its inventory to the Martinez family. f. Ford manufactures a Focus and sells it to Avis, the car rental company. g. California hires workers to repave Highway 101. h. The federal government sends your grandmother a Social Security check. i. Your parents buy a bottle of French wine. j. Honda expands its factory in Ohio. Jesse N. Numerade Educator ### Problem 2 Fill in the blanks: Jesse N. Numerade Educator ### Problem 3 The government purchases component of GDP does not include spending on transfer payments such as Social Security. Thinking about the definition of GDP, explain why transfer payments are excluded. Kaylee M. Numerade Educator ### 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? Kaylee M. Numerade Educator ### Problem 5 Below are some data from the land of milk and honey. a. Compute nominal GDP, real GDP, and the GDP deflator for each year, using 2016 as the base year. b. Compute the percentage change in nominal GDP, real GDP, and the GDP deflator in 2017 and 2018 from the preceding year. For each year, identify the variable that does not change. Explain why your answer makes sense. c. Did economic well-being increase more in 2017 or 2018? Explain. Jesse N. Numerade Educator ### 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?
e. What is the inflation rate as measured by the GDP deflator from year 2 to year 3?
f. In this one-good economy, how might you have answered parts (d) and (e) without first answering parts (b) and (c)?

SA
Salman A.

### Problem 7

Consider the following data on U.S. GDP:

a. What was the growth rate of nominal GDP between 1994 and 2014? (Hint: The growth rate of a variable X over an N-year period is calculated as 100 $\times$ $[(X_{final}/X_{initial})^{1/N} -1$].)
b. What was the growth rate of the GDP deflator between 1994 and 2014?
c. What was real GDP in 1994 measured in 2009 prices?
d. What was real GDP in 2014 measured in 2009 prices?
e. What was the growth rate of real GDP between 1994 and 2014?
f. Was the growth rate of nominal GDP higher or lower than the growth rate of real GDP? Explain.

Jesse N.

### Problem 8

Revised estimates of U.S. GDP are usually released by the government near the end of each month. Find a newspaper article that reports on the most recent release, or read the news release yourself at http://www.bea.gov, the website of the U.S. Bureau of Economic Analysis. Discuss the recent changes in real and nominal GDP and in the components of GDP.

Jesse N.