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Macroeconomics

Paul Krugman, Robin Wells

Chapter 7

Tracking the Macroeconomy - all with Video Answers

Educators

Chapter Questions

04:15

Problem 1

At right is a simplified circular-flow diagram for the economy of Micronia.
a. What is the value of GDP in Micronia?
b. What is the value of net exports?
c. What is the value of disposable income?
d. Does the total flow of money out of householdsthe sum of taxes paid, consumer spending, and private savings-equal the total flow of money into households?
e. How does the government of Micronia finance its purchases of goods and services?

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
04:49

Problem 2

A more complex circular-flow diagram for the economy of Macronia is shown at right.
a. What is the value of GDP in Macronia?
b. What is the value of net exports?
c. What is the value of disposable income?
d. Does the total flow of money out of households-the sum of taxes paid, consumer spending, and private savings-equal the total flow of money into households?
e. How does the government finance its spending?

Md.Daniyal Arshad
Md.Daniyal Arshad
Numerade Educator
03:35

Problem 3

The small economy of Pizzania produces three goods (bread, cheese, and pizza), each produced by a separate company. The bread and cheese companies produce all the inputs they need to make bread and cheese, respectively; the pizza company uses the bread and cheese from the other companies to make its pizzas. All three companies employ labor to help produce their goods, and the difference between the value of goods sold and the sum of labor and input costs is the firm's profit. This table summarizes the activities of the three companies when all the bread and cheese produced are sold to the pizza company as inputs in the production of pizzas.
a. Calculate GDP as the value added in production.
b. Calculate GDP as spending on final goods and services.
c. Calculate GDP as factor income.

Karan Sood
Karan Sood
Numerade Educator
04:18

Problem 4

In the economy of Pizzania (from Problem 3), bread and cheese produced are sold both to the pizza company for inputs in the production of pizzas and to consumers as final goods. The accompanying table summarizes the activities of the three companies.
a. Calculate GDP as the value added in production.
b. Calculate GDP as spending on final goods and services.
c. Calculate GDP as factor income.

Karan Sood
Karan Sood
Numerade Educator
03:35

Problem 5

Which of the following transactions will be included in GDP for the United States?
a. Coca-Cola builds a new bottling plant in the United States.
b. Delta sells one of its existing airplanes to Korean Air.
c. Ms. Moneybags buys an existing share of Disney stock.
d. A California winery produces a bottle of Chardonnay and sells it to a customer in Montreal, Canada.
e. An American buys a bottle of French perfume.
f. A book publisher produces too many copies of a new book; the books don't sell this year, so the publisher adds the surplus books to inventories.

Karan Sood
Karan Sood
Numerade Educator
View

Problem 6

The economy of Britannica produces three goods: computers, DVDs, and plzza. The accompanying table shows the prices and output of the three goods for the years $2002,2003,$ and 2004 a. What is the percent change in production of each of the goods from 2002 to 2003 and from 2003 to $2004 ?$
b. What is the percent change in prices of each of the goods from 2002 to 2003 and from 2003 to $2004 ?$
c. Calculate nominal GDP in Britannica for each of the three years. What is the percent change in nominal GDP from 2002 to 2003 and from 2003 to $2004 ?$
d. Calculate real GDP in Britannica using 2002 prices for each of the three years. What is the percent change in real GDP from 2002 to 2003 and from 2003 to $2004 ?$

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
00:00

Problem 7

The accompanying table shows data on nominal GDP (in billions of dollars), real GDP (in billions of dollars) using 2000 as the base year, and population (in thousands) of the U.S. in $1960,1970,1980,1990,2000,$ and $2004,$ years in which the U.S. price level consistently rose.
a. Why is real GDP greater than nominal GDP for all years before 2000 and lower for 2004 ? Does nominal GDP have to equal real GDP in $2000 ?$
b. Calculate the percent change in real GDP from 1960 to 1970,1970 to 1980,1980 to $1990,$ and 1990 to 2000 Which period had the highest growth rate?
c. Calculate real GDP per capita for each of the years in the table.
d. Calculate the percent change in real GDP per capita from 1960 to 1970,1970 to 1980,1980 to $1990,$ and 1990 to $2000 .$ Which period had the highest growth rate?
e. How do the percent change in real GDP and the percent change in real GDP per capita compare? Which is larger? Do we expect them to have this relationship?

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
00:00

Problem 8

This table shows the Human Development Index (HDI) and real GDP per capita in U.S. dollars for six nations in 2002 .
Rank the nations according to HDI and according to real GDP per capita. Why do the two vary?

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
01:29

Problem 9

Rank the nations according to HDI and according to real GDP per capita. Why do the two vary?

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
02:40

Problem 10

Each month, usually on the first Friday of the month, the Bureau of Labor Statistics releases the Employment Situation Summary for the previous month. Go to www.bls.gov and find the latest report. (On the Bureau of Labor Statistics home page, click on "National unemployment rate" and then choose "Employment Situation Summary.") How does the unemployment rate compare to the rate one year earlier? What percentage of unemployed workers are long-term unemployed workers?

Naveed Naemi
Naveed Naemi
Numerade Educator
01:01

Problem 11

Eastland College is concerned about the rising price of textbooks that students must purchase. To better identify the increase in the price of textbooks, the dean asks you, the Economics Department's star student, to create an index of textbook prices. The average student purchases three English, two math, and four economics textbooks. The prices of these books are given in the accompanying table.
a. Create the price index for these books for all years with a base year of 2002
b. What is the percent change in the price of an English textbook from 2002 to $2004 ?$
c. What is the percent change in the price of a math textbook from 2002 to $2004 ?$
d. What is the percent change in the price of an economics textbook from 2002 to $2004 ?$
e. What is the percent change in the market index from 2002 to $2004 ?$

Jennifer Stoner
Jennifer Stoner
Numerade Educator
00:04

Problem 12

The consumer price index, or CPI, measures the cost of living for the average consumer by multiplying the price for each category of expenditure (housing, food, and so on) times a measure of the importance of that expenditure in the average consumer's market basket and summing over all categories. However, using data from the consumer price index, we can see that changes in the cost of living for different types of consumers can vary a great deal. Let's compare the cost of living for a hypothetical retired person and a hypothetical college student. Let's assume that the market basket of a retired person is allocated in the following way: $10 \%$ on housing, $15 \%$ on food, $5 \%$ on transportation, $60 \%$ on medical care, $0 \%$ on education, and $10 \%$ on recreation. The college student's market basket is allocated as follows: $5 \%$ on housing, $15 \%$ on food, $20 \%$ on transportation, 096 on medical care, $40 \%$ on education, and $20 \%$ on recreation. The accompanying table shows the December 2004 CPI for each of the relevant categories.
Calculate the overall CPI for the retired person and for the college student by multiplying the CPI for each of the categories by the relative importance of that category to the individual and then summing each of the categories. The CPI for all items in December 2004 was $190.3 .$ How do your calculations for a CPI for the retired person and the college student compare to the overall CPI?

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
02:04

Problem 13

Each month the Bureau of Labor Statistics releases the Consumer Price Index Summary for the previous month. Go to www.bls.gov and find the latest report. (On the Bureau of Labor Statistics home page, click on "CPI" under "Latest Numbers" and then choose "Consumer Price Index Summary." it change from the previous month? How does the CPI compare to the same month one year ago?

Doris Bennett
Doris Bennett
Numerade Educator
02:05

Problem 14

The accompanying table contains two price indexes for the years $2002,2003,$ and 2004: the GDP deflator and the CPI. For each price index, calculate the inflation rate from 2002 to 2003 and from 2003 to 2004
$$\begin{array}{|ccc|}
\text { Year } & \text { GDP deflator } & \text { cPI } \\
\hline 2002 & 104.1 & 179.9 \\
2003 & 106.0 & 184.0 \\
2004 & 108.3 & 188.9
\end{array}$$

Andrew Davis
Andrew Davis
Numerade Educator