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Economics

Michael Parkin

Chapter 21

Measuring GDP and Economic Growth - all with Video Answers

Educators

Chapter Questions

08:56

Problem 1

Classify the following items as a final good or service or an intermediate good or service and identify each item as a component of consumption expenditure, investment, or government expenditure on goods and services:
$\cdot$ Airline ticket bought by a student.
$\cdot$ New airplanes bought by Southwest Airlines.
$\cdot$ Cheese bought by Domino's.
$\cdot$ Your purchase of a new iPhone.
$\cdot$ New house bought by Bill Gates.

Ansh Varma
Ansh Varma
Numerade Educator
08:50

Problem 2

The following figure illustrates the circular flow model.
During $2014,$ flow $A$ was $\$ 13.0$ trillion, flow $B$ was $\$ 9.1$ trillion, flow $D$ was $\$ 3.3$ trillion, and flow $E$ was $-\$ 0.8$ trillion. Calculate (i) GDP and
(ii) Government expenditure.

Ansh Varma
Ansh Varma
Numerade Educator
02:21

Problem 3

Use the following data to calculate aggregate expenditure and imports of goods and services.
$\cdot$ Government expenditure: $\$ 20$ billion
$\cdot$ Aggregate income: $\$ 100$ billion
$\cdot$ Consumption expenditure: $\$ 67$ billion
$\cdot$ Investment: $\$ 21$ billion
$\cdot$ Exports of goods and services: $\$ 30$ billion

Heather Duong
Heather Duong
Numerade Educator
01:17

Problem 4

The table in the next column lists some national accounts data for the United States in 2008
a. Calculate U.S. GDP in 2008 .
$$\begin{array}{lr}
\text { Item } & \text { Billions of dollars } \\
\hline \text { Wages } & 8,000 \\
\text { Consumption expenditure } & 10,000 \\
\text { Other factor incomes } & 3,200 \\
\text { Investment } & 2,000 \\
\text { Government expenditure } & 2,800 \\
\text { Net exports } & -700 \\
\text { Depreciation } & 1,800
\end{array}$$
b. Explain the approach (expenditure or income) you used to calculate GDP.

Andrew Davis
Andrew Davis
Numerade Educator
03:41

Problem 5

Tropical Republic produces only bananas and coconuts. The base year is 2013 , and the table gives the quantities produced and the market prices.
$$\begin{array}{lcc}
\text { Quantities } & 2013 & 2014 \\
\hline \text { Bananas } & 800 \text { bunches } & 900 \text { bunches } \\
\text { Coconuts } & 400 \text { bunches } & 500 \text { bunches } \\
\text { Prices } & 2013 & 2014 \\
\hline \text { Bananas } & \$ 2 \text { a bunch } & \$ 4 \text { a bunch } \\
\text { Coconuts } & \$ 10 \text { a bunch } & \$ 5 \text { a bunch }
\end{array}$$
Calculate nominal GDP in 2013 and 2014

Ansh Varma
Ansh Varma
Numerade Educator
03:58

Problem 6

Tropical Republic produces only bananas and coconuts. The base year is 2013 , and the table gives the quantities produced and the market prices.
$$\begin{array}{lcc}
\text { Quantities } & 2013 & 2014 \\
\hline \text { Bananas } & 800 \text { bunches } & 900 \text { bunches } \\
\text { Coconuts } & 400 \text { bunches } & 500 \text { bunches } \\
\text { Prices } & 2013 & 2014 \\
\hline \text { Bananas } & \$ 2 \text { a bunch } & \$ 4 \text { a bunch } \\
\text { Coconuts } & \$ 10 \text { a bunch } & \$ 5 \text { a bunch }
\end{array}$$
Calculate real GDP in 2014 expressed in baseyear prices.

Ansh Varma
Ansh Varma
Numerade Educator
02:33

Problem 7

Use the following table to work out in which year the U.S. standard of living (i) increases and
(ii) decreases. Explain your answer.
$$\begin{array}{lcc}
\text { Year } & \text { Real GDP } & \text { Population } \\
\hline 2006 & \$ 13.0 \text { trillion } & 300 \text { million } \\
2007 & \$ 13.2 \text { trillion } & 302 \text { million } \\
2008 & \$ 13.2 \text { trillion } & 304 \text { million } \\
2009 & \$ 12.8 \text { trillion } & 307 \text { million }
\end{array}$$

Heather Duong
Heather Duong
Numerade Educator
13:22

Problem 8

An island economy produces only fish and crabs.
$$\begin{array}{lcc}
\text { Quantities } & 2013 & 2014 \\
\hline \text { Fish } & 1,000 \text { tons } & 1,100 \text { tons } \\
\text { Crabs } & 500 \text { tons } & 525 \text { tons } \\
\text { Prices } & 2013 & 2014 \\
\hline \text { Fish } & \$ 20 \text { a ton } & \$ 30 \text { a ton } \\
\text { Crabs } & \$ 10 \text { a ton } & \$ 8 \text { a ton }
\end{array}$$
Calculate the island's chained-dollar real GDP in 2014 expressed in 2013 dollars.

Heather Duong
Heather Duong
Numerade Educator
09:18

Problem 9

Classify each of the following items as a final or an intermediate good or service, and identify which is a component of consumption expenditure, investment, or government expenditure on goods and services:
$\cdot$ Financial services bought by China Investment Corporation.
$\cdot$ Desktop computers bought by Barclays.
$\cdot$ New taximeters imported from China by the London Taxi Company.
$\cdot$ New DVD bought by a student from Virgin Megastore.

Heather Duong
Heather Duong
Numerade Educator
02:18

Problem 10

In $2013,$ flow $A$ was $\$ 1,000$ billion, flow $C$ was $\$ 250$ billion, flow $B$ was $\$ 650$ billion, and flow $E$ was $\$ 50$ billion. Calculate investment.

Heather Duong
Heather Duong
Numerade Educator
02:12

Problem 11

In $2014,$ flow $D$ was $\$ 2$ trillion, flow $E$ was $-\$ 1$ trillion, flow $A$ was $\$ 10$ trillion, and flow $C$ was $\$ 4$ trillion. Calculate consumption expenditure.

Heather Duong
Heather Duong
Numerade Educator
03:46

Problem 12

The French state-owned DCNS shipyard provides parts and equipment for Brazilian submarines. Renault do Brasil produces cars for the Brazilian market in ParanĂ¡.
Explain where these activities appear in the Brazilian National Income and Product Accounts.

Heather Duong
Heather Duong
Numerade Educator
01:47

Problem 13

The French state-owned DCNS shipyard provides parts and equipment for Brazilian submarines. Renault do Brasil produces cars for the Brazilian market in ParanĂ¡.
Explain where these activities appear in France's National Income and Product Accounts.

Heather Duong
Heather Duong
Numerade Educator
02:07

Problem 14

Boeing is producing some components of its new 787 Dreamliner in Japan and is assembling it in the United States. Much of the first year's production will be sold to ANA (All Nippon Airways), a Japanese airline.
Explain how Boeing's activities and its transactions affect U.S. and Japanese GDP.

Heather Duong
Heather Duong
Numerade Educator
02:14

Problem 15

Boeing is producing some components of its new 787 Dreamliner in Japan and is assembling it in the United States. Much of the first year's production will be sold to ANA (All Nippon Airways), a Japanese airline.
Explain how ANA's activities and its transactions affect U.S. and Japanese GDP.

Heather Duong
Heather Duong
Numerade Educator
01:55

Problem 16

$$\begin{array}{lr}
\text { Item } & \text { Billions of dollars } \\
\hline \text { Wages } & 8,000 \\
\text { Consumption expenditure } & 10,000 \\
\text { Other factor incomes } & 3,400 \\
\text { Investment } & 1,500 \\
\text { Government expenditure } & 2,900 \\
\text { Net exports } & -340
\end{array}$$
Calculate U.S. GDP in 2009

Heather Duong
Heather Duong
Numerade Educator
02:25

Problem 17

$$\begin{array}{lr}
\text { Item } & \text { Billions of dollars } \\
\hline \text { Wages } & 8,000 \\
\text { Consumption expenditure } & 10,000 \\
\text { Other factor incomes } & 3,400 \\
\text { Investment } & 1,500 \\
\text { Government expenditure } & 2,900 \\
\text { Net exports } & -340
\end{array}$$
Explain the approach (expenditure or income) that you used to calculate GDP.

Heather Duong
Heather Duong
Numerade Educator
07:22

Problem 18

$$\begin{array}{lcc}
\text { Quantities } & 2012 & 2013 \\
\hline \text { Apples } & 60 & 160 \\
\text { Oranges } & 80 & 220 \\
\text { Prices } & 2012 & 2013 \\
\hline \text { Apples } & \$ 0.50 & \$ 1.00 \\
\text { Oranges } & \$ 0.25 & \$ 2.00
\end{array}$$
Calculate nominal GDP in 2012 and 2013

Heather Duong
Heather Duong
Numerade Educator
07:46

Problem 19

$$\begin{array}{lcc}
\text { Quantities } & 2012 & 2013 \\
\hline \text { Apples } & 60 & 160 \\
\text { Oranges } & 80 & 220 \\
\text { Prices } & 2012 & 2013 \\
\hline \text { Apples } & \$ 0.50 & \$ 1.00 \\
\text { Oranges } & \$ 0.25 & \$ 2.00
\end{array}$$
Calculate real GDP in 2012 and 2013 expressed in base-year prices.

Heather Duong
Heather Duong
Numerade Educator
02:56

Problem 20

GDP Expands 11.4 Percent, Fastest in 13 Years China's gross domestic product grew 11.4 percent last year and marked a fifth year of doubledigit growth. The increase was especially remarkable given that the United States is experiencing a slowdown due to the sub-prime crisis and housing slump. Citigroup estimates that each 1 percent drop in the U.S. economy will shave 1.3 percent off China's growth, because Americans are heavy users of Chinese products. In spite of the uncertainties, China is expected to post its sixth year of double-digit growth next
year.
Use the expenditure approach for calculating China's GDP to explain why "each 1 percent drop in the U.S. economy will shave 1.3 percent off China's growth."

Heather Duong
Heather Duong
Numerade Educator
04:49

Problem 21

The United Nations' Human Development Index $(\mathrm{HDI})$ is based on real GDP per person, life expectancy at birth, and indicators of the quality and quantity of education.
a. Explain why the HDI might be better than real GDP as a measure of economic welfare.
b. Which items in the HDI are part of real GDP and which items are not in real GDP?
c. Do you think the HDI should be expanded to include items such as pollution, resource depletion, and political freedom? Explain.
d. What other items should be included in a comprehensive measure of economic welfare?

Heather Duong
Heather Duong
Numerade Educator
05:45

Problem 22

China is About to Overtake the US to Become World's Largest Economy Figures published by the IMF show that China is set to overtake the US to become the world's largest economy. Purchasing power parity or PPP of China will climb to $\$ 17.632$ trillion this year, compared with $\$ 17.416$ trillion for the US. But analysis by IHS points out that China is not expected to rise above the US until 2024 in terms of nominal GDP.
If PPP of China becomes greater than that of the
U.S. but the GDP of the U.S remains higher, does this comparison of PPP really tell us which country has the higher standard of living? What does the news clip mean by 'nominal GDP'?

Heather Duong
Heather Duong
Numerade Educator
05:54

Problem 23

Use the news clip in Problem 20
a. Why might China's recent GDP growth rates overstate the actual increase in the level of production taking place in China?
b. Explain the complications involved with attempting to compare the economic welfare in China and the United States by using the GDP for each country.

Heather Duong
Heather Duong
Numerade Educator
04:58

Problem 24

Poor India Makes Millionaires at Fastest Pace
India, with the world's largest population of poor people, created millionaires at the fastest pace in the world in $2007 .$ India added another 23,000 more millionaires in 2007 to its 2006 tally of 100,000 millionaires measured in dollars. That is 1 millionaire for about 7,000 people living on less than $\$ 2$ a day.
a. Why might real GDP per person misrepresent the standard of living of the average Indian?
b. Why might $\$ 2$ a day underestimate the standard of living of the poorest Indians?

Heather Duong
Heather Duong
Numerade Educator
06:22

Problem 25

After you have studied Economics in the News on
pp. $542-543,$ answer the following questions.
a. By what percentage did real GDP grow from the second quarter of 2013 to the second quarter of 2014 ? (You can find the data you need to calculate this percentage change on $\mathrm{p}$. 543.2
b. Comparing the increase in the second quarter with the year-on-year increase, what can you say about the change in the real GDP growth rate? Is it slowing or speeding up?
c. Describe the relationship between the fluctuations in the change in real GDP and business inventory investment. Why might inventory changes sometimes lag real GDP changes?

Heather Duong
Heather Duong
Numerade Educator
04:16

Problem 26

Totally Gross GDP has proved useful in tracking both shortterm fluctuations and long-run growth. Which isn't to say GDP doesn't miss some things. Amartya Sen, at Harvard, helped create the United Nations' Human Development Index, which combines health and education data with per capita GDP to give a better measure of the wealth of nations. Joseph Stiglitz, at Columbia, advocates a "green net national product" that takes into account the depletion of natural resources. Others want to include happiness in the measure. These alternative benchmarks have merit but can they be measured with anything like the frequency, reliability, and impartiality of GDP?
a. Explain the factors that the news clip identifies as limiting the usefulness of GDP as a measure of economic welfare.
b. What are the challenges involved in trying to incorporate measurements of those factors in an effort to better measure economic welfare?
c. What does the ranking of the United States in the Human Development Index imply about the levels of health and education relative to other nations?

Heather Duong
Heather Duong
Numerade Educator
13:50

Problem 27

Use the information in Problem 18 to calculate the chained-dollar real GDP in 2013 expressed in 2012 dollars.

Heather Duong
Heather Duong
Numerade Educator