4.9: Exercises for Chapter 4

Last updated
Save as PDF

Page ID: 45753

$ \newcommand{\vecs}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } $ $ \newcommand{\vecd}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash {#1}}} $$\newcommand{\id}{\mathrm{id}}$ $ \newcommand{\Span}{\mathrm{span}}$ $ \newcommand{\kernel}{\mathrm{null}\,}$ $ \newcommand{\range}{\mathrm{range}\,}$ $ \newcommand{\RealPart}{\mathrm{Re}}$ $ \newcommand{\ImaginaryPart}{\mathrm{Im}}$ $ \newcommand{\Argument}{\mathrm{Arg}}$ $ \newcommand{\norm}[1]{\| #1 \|}$ $ \newcommand{\inner}[2]{\langle #1, #2 \rangle}$ $ \newcommand{\Span}{\mathrm{span}}$ $\newcommand{\id}{\mathrm{id}}$ $ \newcommand{\Span}{\mathrm{span}}$ $ \newcommand{\kernel}{\mathrm{null}\,}$ $ \newcommand{\range}{\mathrm{range}\,}$ $ \newcommand{\RealPart}{\mathrm{Re}}$ $ \newcommand{\ImaginaryPart}{\mathrm{Im}}$ $ \newcommand{\Argument}{\mathrm{Arg}}$ $ \newcommand{\norm}[1]{\| #1 \|}$ $ \newcommand{\inner}[2]{\langle #1, #2 \rangle}$ $ \newcommand{\Span}{\mathrm{span}}$$\newcommand{\AA}{\unicode[.8,0]{x212B}}$

EXERCISE 4.1

You have the following annual data for an economy:

Year	Real GDP	Consumer price	Labour force	Employment
	(2007 $)	index (2007=100)	(000)	(000)
2012	1,282	109.1	17.593	16.537
2013	1,307	111.9	17.857	16.696
2014	1,288	138.9	18.125	16.856

What was the rate of growth of real GDP from 2012 to 2013, and 2013 to 2014?
What was the rate of inflation in 2013 and in 2014?
What were the rates of growth of the labour force and employment from 2012 to 2013, and 2013 to 2014?
What happened to the unemployment rate between 2012 and 2013, and between 2013 and 2014?

EXERCISE 4.2

Suppose the economy represented by the table in Exercise 4.1 above had a population of 27.885 thousand in 2014.

What were the participation and employment rates in the economy in that year?
Suppose a mild recession in that year discouraged some unemployed workers and they stop looking for work. As a result the participation rate fell to 64.5 per cent. How would the unemployment rate and the employment rate be affected? Why?

EXERCISE 4.3

If brewers buy barley and hops from agricultural producers, natural gas to fire their brew kettles from gas companies and bottles from glass manufacturers as in the following table, what is the value added of the brewing industry? If brewers also wholesale some of their output to pubs, is that output counted in GDP? Explain your answer.

Costs (millions of current $) of:
Brewery retail sales	Barley and hops	Natural gas	Bottles
1000	350	125	150

EXERCISE 4.4

The economy has two main industries. One produces services and the other produces goods. The services industries produce services for households and businesses with a total market value of $10,000. The goods industries produce goods for the use of both households and businesses with a total market value of $5,000. The service industries spend $1,000 on computers and paper and envelopes supplied by the goods industries. The goods industries spend $1,000 to buy financial, insurance, advertising and custodial services supplied by the service industries. Explain how you measure nominal GDP in this economy and the value of output you find?

EXERCISE 4.5

Suppose you are given the following data on incomes and expenditures for the economy of Westland, in current prices for factors of production and outputs.

Consumption expenditures	2,500
Employment compensation	2,800
Government expenditure	800
Net indirect taxes	150
Exports	1,200
Gross corporate surplus and mixed income	1,050
Investment expenditure	600
Imports	1,100

What is the value of nominal GDP measured by expenditures?
What is net domestic income?
What is the value of nominal GDP measured by the income approach?

EXERCISE 4.6

Suppose GDP is $2,000, consumption expenditure is $1,700, government expenditure is $50, and net exports are $40.

What is business investment expenditure?
If exports are $350, what are imports?
In this example, net exports are positive. Could they be negative?

EXERCISE 4.7

Consider the following information about a hypothetical economy:

Year	Nominal GDP	GDP deflator	Population
	(billions $)	(2000=100)	(millions $)
2012	750	104.0	25.0
2013	825	112.0	30.0

Calculate the growth (percentage change) in nominal GDP from 2012 to 2013.
What was real GDP in 2012 and 2013? How much did real GDP grow?
If changes in the standard of living can be measured by changes in real per capita GDP, did growth in nominal and real GDP raise the standard of living in this economy from 2012 to 2013?
Explain the reasons for the change in standard of living that you have found.