Q1. For each of the following transactions, state the effect on both U. S. GDP and on the four major components. Your cousin is an American citizen who lives in Iowa.
a. Your cousin buys a new car from General Motors; it was made in Michigan.
b. Your cousin buys a new Hyundai imported from Korea.
c. Your cousin's car rental company buys a new car from General Motors; it was made in Michigan.
d. Your cousin's car rental company buys a new Hyundai imported from Korea.
e. The U.S. government buys a new car from General Motors, made in Michigan, for the use of your cousin, who has been appointed ambassador to Korea.
f. Your cousin buys a used car from a friend, who is selling it because she has been appointed ambassador to Korea. The car was originally made by General Motors in Michigan.
g. Your cousin buys the house that the newly appointed ambassador to Korea is vacating; the realtor gets a 6% commission.
h. General Motors makes a new Hummer and ships it to a dealer's lot in Iowa. It sits there and nobody buys it.
i. Toyota makes a new Corolla and ships it to a dealer's lot in Iowa. It sits there and nobody buys it.
j. Your cousin buys a Corolla from a dealer in Iowa. It has been sitting on the dealer's lot for 6 months.
k. Your cousin learns that lead from his water pipes is leaching into his drinking water, poisoning his family. Therefore he replaces the pipes at a cost of tens of thousands of dollars.
Q2. The nation of Plameia produces umbrellas, cases of sarsaparilla, and massages. Here are data on the prices and quantities of the three goods for 2000 and 2015:
Umbrellas
2000: 100 at price of $5 each
2015: 125 at price of $8 each
Sarsaparilla
2000: 400 at $20 each
2015: 500 at $21 each
Massages
2000: 110 at $20 each
2015: 125 at $25 each
Let the base year be 2000. Find nominal GDP and real GDP for both years. What is the rate of increase of nominal GDP? What is the rate of increase of real GDP? What would the rate of increase of real GDP be with a base year of 2015?
Q3. The government is considering new regulations about how homes can be built in areas that are prone to hurricanes. In considering these new regulations, how, if at all, should the likely effects of the policy on nominal GDP be taken into account? The effects on real GDP?
Q4. The nation of Equalitania has three classes of people: peasants, who make 1000 Equalitanian dollars (ED) a year; middlings, who make 2000 ED a year; and upper class twits, who make 10,000 ED a year. The household population of Equalitania is 100,000: 20,000 peasants, 60,000 middlings, and 20,000 upper class twits. In addition, 100,000 peasants are in prison for selling illicit cucumbers. The poverty level is 1,500 ED.
a. Draw the Lorenz curve for the household population and find the Gini coefficient (assume every household has essentially zero mass) for the household population, the proportion of income obtained by the top 10% of households, and the poverty rate.
b. A general amnesty is proclaimed and the prisons are emptied. Former prisoners all earn peasant income. Find the Gini coefficient, the proportion of income obtained by the top 10%, and poverty rate. On which measures does the general amnesty appear to increase inequality? On which measures does it appear to decrease inequality? Is there anything wrong here?
Q5. Go to the Bureau of Labor Statistics historical chart on average labor productivity growth in the US. You can find this at
https://www.bls.gov/lpc/prodybar.htm
Suppose that growth of average labor productivity had continued at its 1947-1973 rate until 2015. Proportionally, how much higher would average labor productivity have been in 2015, compared with its actual value?
6. Go to the World Bank table of GDP by country.
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD
Find the GDP for the US and for China in 2014. Go to the table of growth rates from the World Bank:
https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG
If both countries continue to grow at the rate at which they grew in 2013, when does China become the country with the largest GDP in the world? Is this likely to happen then? Why or why not?
7. Go to the World Bank table of GDP per capita by country:
https://data.worldbank.org/indicator/NY.GDP.PCAP.CD
Suppose that the population of both countries grows at the same rate every year after 2014 (so the relative populations stay the same). Suppose also that GDP in each country continues to grow at the rate at which it grew in 2014. When does GDP per capita in China equal GDP per capita in the US? What is the probability that you will be alive then?