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Exercises for Chapter 4

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  • Exercise 4.1 You have the following annual data for an economy:

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    (a) What was the rate of growth of real GDP from 2010 to 2011, and 2011 to 2012?

    (b) What was the rate of inflation in 2011 and in 2012?

    (c) What were the rates of growth of the labour force and employment from 2010 to 2011, and 2011 to 2012?

    (d) What happened to the unemployment rate between 2010 and 2011, and between 2011 and 2012?

    Exercise 4.2 Suppose the economy represented by the table in Exercise 4.1 above had a population of 27.885 thousand in 2011.

    (a) What were the participation and employment rates in the economy in those years?

    (b) 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.

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    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 $1000 on computers and paper and envelopes supplied by the goods industries. The goods industries spend $1000 to buy financial, insurance, advertising and custodial 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.

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    (a) What is the value of nominal GDP measured by expenditures?

    (b) What is net domestic income?

    (c) 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.

    (a) What is business investment expenditure?

    (b) If exports are $350, what are imports?

    (c) If the capital consumption allowance for depreciation is $130 and net indirect taxes are $100, what is net domestic income?

    (d) In this example, net exports are positive. Could they be negative?

    Exercise 4.7 Consider the following information about a hypothetical economy:

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    (a) Calculate the growth (percentage change) in nominal GDP from 2012 to 2013.

    (b) What was real GDP in 2007 and 2008? How much did real GDP grow?

    (c) 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?

    (d) Explain the reasons for the change in standard of living that you have found.