MEASUREMENT OF EQUILIBRIUM LEVEL OF NATIONAL INCOME

•QUESTION 1• GIVEN THE FOLLOWING INFORMATION ABOUT THE OPEN ECONOMY OF

COUNTRY X

• GDP = $ 1,000 million• G = $ 100 million• C = $850 million• X = $100 million• T = $50 million• IM = $ 125 million

• a)Investment spending?• b) Private savings?• c) Budget balance?• d) Capital Inflow?• e) Relationship among the four?

•QUESTION 2• GIVEN THE FOLLOWING INFORMATION ABOUT THE OPEN ECONOMY OF COUNTRY X

• Government purchases of goods and services : $100• Taxes : $100• Consumer Spending : $650• Wages, profit, interest, rent : $750• Exports : $20• Imports : $20

• a)What is the value of GDP in Country X?• 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 and

consumer spending – equals of the total of money into households?• e) How does the government of Country X finance its purchases of goods and

services?

•QUESTION 3

•QUESTION 4

a. Assuming that no intermediate inputs are used other than the ones named, what is the value added at each stage of production – Stage 1-5?

b. Using the value added approach, what is the total contribution to the GDP of this chain of production?

c. Using the expenditure approach, what is total contribution to the GDP of this good? Explain why the number you got in part c is (or is not) the same as that from part b.

•QUESTION 5

The small economy of the United States of Sustainability has only three companies: a bicycle manufacturer, a wind energy producer, and an organic cheese company. The only costs these companies have are the cost of their inputs and wages. Assume there’s no rents, no depreciation, and no net income payments from the foreign sector. Assume all the output is sold to consumers as final goods. The companies’ profits = Value of output (total revenues) – total costs.

• a. Calculate the GDP of the United States of Sustainability using the income approach. • b. Calculate the GDP of the United States of Sustainability using the spending approach. • c. Calculate the GDP

BICYCLE WIND ENERGY ORGANIC CHEESCOST OF INPUTS $0 $0 $0

WAGES $50 $75 $25

VALUE OF OUTPUT (TOTAL REVENUES)

$100 $150 $50

•QUESTION 6• Assume a simple economy produces only two goods, corn and wheat.

In the first year 100 bushels of corn are produced, and sold for $3 a bushel. Also in the first year, 50 bushels of wheat are produced, and sold for $5 a bushel. In the second year, 110 bushels of corn are produced, and sold for $3.50, while 55 bushels of wheat are produced, and sold for $5.50.

• a. Calculate the nominal GDP in year 1 and 2. • b. Calculate the growth rate of nominal GDP between years 1 and 2. • c. Using the constant-dollar approach:, calculate the real GDP in year 1

and 2. Take year 1 as the base year. • d. Calculate the growth in real GDP between years 1 and 2 (with year 1

as the base year). • e. Calculate a constant weight price index for the second year, using

the first year as the base. • f. What is the growth rate of prices (inflation rate) from the first to the

second year?

•QUESTION 7Given the difference between Gross Domestic Product and Gross National Productfor a given economy:a) Provide an interpretation

for the numbers of the following Table:

b) In your country, which would you want to be bigger, GDP, or GNP? Why?

•QUESTION 8

•QUESTION 9

•QUESTION 101. Calculate consumer spending.

2. Calculate private investment spending.

3. Calculate net exports.

4. Calculate government purchases of goods and services and investment spending.

5. Calculate gross domestic product.

6. Calculate consumer spending on services as a percentage of total consumer spending.

7. Calculate exports as a percentage of imports.

8. Calculate government purchases on national defense as a percentage of federal government purchases of goods and services.

•QUESTION 11Below is a simplified circular-flow diagram for the economy of Utopia.

1. What is the value of GDP.

2. What is the value of net exports?

3. What is the value of disposable income?

4. Does the total flow of money out of households—the sum of taxes paid and consumer spending—equals the total flow of money into households?

•QUESTION 12

1. Define money2. List function of money3. Calculate M1 and M2

•QUESTION 13

1. Calculate the number of workers employed in each of the regions in March 2007 and March 2008. Use your answers to calculate the change in the total number of workers employed between March 2007 and March 2008.

2. For each region, calculate the growth in the labor force from March 2007 to March 2008.

3. Compute unemployment rates in the different regions of the country in March 2007 and March 2008.

4. What can you explain about the rise in unemployment rates over this period? Was it caused by a net loss in the number of jobs or by a large increase in the number of people seeking jobs?

•QUESTION 14

a) Define labor force. For each year find the labor force. b) Define the term "discouraged workers". For each year find the number of discouraged workers.c) Define the labor-force articipation rate. Calculate it for each year.d) Calculate the unemployment rate for each year.

•THANK YOU. . .