Exam 7: Measuring the Aggregate Economy

Describe in your own words the difference between a stock and a flow.For each of the following activities, determine whether it is a stock concept or a flow concept: (a) Sue earns $5.75 per hour working at the Burger Barn. (b) On his way home from work, Sam finds a ten-dollar bill. (c) Upon graduation, John accepts a job with a salary of $2000. (d) Jennifer saves 10% of her monthly income. (e) Alex saves $1,000 a year. (f) Japan has a capital to labor ratio of 10 where China has a capital to labor ratio of 2.

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Question 1

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A stock concept is a measure of something at a particular point in time.
A flow concept is a measure of something during a specific time period.
(a) Flow.
(b) Stock.
(c) Flow.
(d) Flow.
(e) Flow.
(f) Stock.

Your economics professor asked you to use data from the U.S.economy to show that GNP can be calculated using the income approach and the expenditures approach.What type of data should you gather to complete this assignment?

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Question 2

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Using the expenditures approach, GDP = C + I + G + (X - M).You need data on personal consumption, gross private investment, government purchases, exports, and imports.Then, to calculate GNP, you need data on income from foreign domestic factor sources, and data on foreign factor income earned domestically in order to calculate net foreign factor income (GNP = GDP + net foreign factor income).
Using the income approach, you first need to calculate national income, NI.For that, you need to gather data on employee compensation, rents, interest, and profits (NI = employee compensation + rents + interest + profit).To get GNP, data on indirect taxes and depreciation are needed (GNP = NI + indirect taxes + depreciation).

What is national income? What are its four components?

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Question 3

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National income is total income earned by citizens and businesses of a country.National income consists of four income items: compensation of employees, rents, interest, and profit.

If an economy consists of two goods, and one good's price goes up by 5% and the other good's price goes down by 5%, what is the most precise answer we can give about the amount of inflation in the economy?

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Question 4

Which of the following transactions is considered a purchase of final output? Which one is considered the purchase of an intermediate good? (a) Albert purchased a camera from the U.S.to use on his vacation in the Bahamas. (b) Albert purchased a roll of film to use in his camera. (c) An owner of a bakery purchased wheat to make bread. (d) A chocolate factory purchased milk to make chocolate. (e) The Ford Company purchased 10 tons of steel to make cars. (f) Sue purchased cleaning detergent to use in her newly purchased washing machine. (g) Karen bought tomato seeds and planted them in her backyard for her own use.

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Question 5

Answer all of the following questions concerning GDP growth. (a) Nominal GDP increases from $5 trillion to $5.5 trillion while the price level increases by 10%.Has real income increased? (b) Nominal GDP increases from $6 trillion to $6.8 trillion while real GDP increases from $6 trillion to $6.2 trillion.What happened to the price level? (c) Nominal GDP increases from $7 trillion to $8 trillion while real GDP increases from $7 trillion to $7.5 trillion.By what percent did real income change?

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Question 6

What is the difference between GDP and GNP? How are they related?

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Question 7

Real GDP and per capita real output are two indicators used by the government to measure economic growth.Define them, and explain why growth of per capita real output is a more accurate measurement of the growth in the economic welfare of individuals.

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Question 8

Real output is $550 billion and nominal output is $600 billion.What is the value of the price index?

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Question 9

If nominal GDP grew at 4% per year over the past four years, can we be sure that everyone is better off now? Explain your answer.

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Question 10

What is the distinction between gross domestic product (GDP) and net domestic product (NDP)? In theory, which is a superior measure of aggregate output?

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Question 11

If the inflation rate is 6% and the nominal interest rate is 8%, what is the real rate of interest?

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Question 12

Aggregate income is divided into four categories.They are (1) Compensation of Employees, (2) Rents, (3) Interest and (4) Profits.Briefly describe what is and is not included in each category.

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Question 13

Fill in the blanks of the following table and answer the following questions. Year Real GDP Nominal GDP GDP Deflator 2018 8,144.8 101.9 2019 8,759.9 103.1 2020 8,848.2 9,256.1 __ (a) Does the table indicate there is inflation? Explain your answer. (b) What was the percentage change in nominal GDP in 2006 and 2007? Inflation? Real GDP?

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Question 14

If asset price inflation has occurred, which has changed: real wealth, nominal wealth or both?

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Question 15

Determine the amount contributed to GDP from the sale of 200,000 copies of an album.Base your answer on the following information: The artist receives $3 per album in royalties. The producer sells each album to wholesalers for $10. Wholesalers sold the album to retailers for an average price of $12 per album. Retailers sold 200,000 album s to consumers for $15 per album. Demonstrate how the value-added approach equals the final sales approach.

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Question 16

Why might per capita GDP comparisons of living standards between countries be misleading? What do economists do to avoid some of the problems?

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Question 17

What is inflation and how do we measure it? Which prices does each of the major price indexes actually measure? How can a price index be used to convert nominal output into real output?

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Question 18

Purchases of stocks and bonds in economic terminology are not investment.Explain why this statement is true.

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Question 19

What is real wealth?

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Question 20

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Your economics professor asked you to use data from the U.S.economy to show that GNP can be calculated using the income approach and the expenditures approach.What type of data should you gather to complete this assignment?

What is national income? What are its four components?

If an economy consists of two goods, and one good's price goes up by 5% and the other good's price goes down by 5%, what is the most precise answer we can give about the amount of inflation in the economy?

What is the difference between GDP and GNP? How are they related?

Real GDP and per capita real output are two indicators used by the government to measure economic growth.Define them, and explain why growth of per capita real output is a more accurate measurement of the growth in the economic welfare of individuals.

Real output is $550 billion and nominal output is $600 billion.What is the value of the price index?

If nominal GDP grew at 4% per year over the past four years, can we be sure that everyone is better off now? Explain your answer.

What is the distinction between gross domestic product (GDP) and net domestic product (NDP)? In theory, which is a superior measure of aggregate output?

If the inflation rate is 6% and the nominal interest rate is 8%, what is the real rate of interest?

Aggregate income is divided into four categories.They are (1) Compensation of Employees, (2) Rents, (3) Interest and (4) Profits.Briefly describe what is and is not included in each category.

If asset price inflation has occurred, which has changed: real wealth, nominal wealth or both?

Why might per capita GDP comparisons of living standards between countries be misleading? What do economists do to avoid some of the problems?

What is inflation and how do we measure it? Which prices does each of the major price indexes actually measure? How can a price index be used to convert nominal output into real output?

Purchases of stocks and bonds in economic terminology are not investment.Explain why this statement is true.

What is real wealth?

Economics and Economic Reasoning

The Production Possibility Model, Trade and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Economic Growth, Business Cycles, and Unemployment

The Aggregate Demand-Aggregate Supply Model

Growth, Productivity, and the Wealth of Nations

The Financial Sector and the Economy

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

Inflation, Deflation and Macro Policy

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policies in Developing Countries

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