Question 1- (Income Approach to GDP) How does the income approach to measuring GDP differ from the expenditure approach? Explain the meaning of value added and its importance in the income approach. Consider the following data for the selling price at each stage in the production of a 5-pound bag of flour sold by your local grocer. Calculate the final market value of the flour.
| Stage of Production |
Sale Price |
| Farmer |
$0.30 |
| Miller |
0.50 |
| Wholesaler |
1.00 |
| Grocer |
1.50 |
Question 2- (Expenditure Approach to GDP) Given the following annual information about a hypothetical country, answer questions a through d.
|
Billions of Dollars |
| Personal consumption expenditures |
$200 |
| Personal taxes |
50 |
| Exports |
30 |
| Depreciation |
10 |
| Government purchases |
50 |
| Gross private domestic investment |
40 |
| Imports |
40 |
| Government transfer payments |
20 |
a. What is the value of GDP?
b. What is the value of net domestic product?
c. What is the value of net investment?
d. What is the value of net exports?
Question 3- (Consumer Price Index) Calculate a new consumer price index for the data in the following exhibit. Assume that current-year prices of Twinkies, fuel oil, and cable TV are $0.95/package, $1.25/gallon, and $15.00/month, respectively. Calculate the current year's cost of the market basket and the value of the current year's price index. What is this year's percentage change in the price level compared to the base year?
| Product |
Quantity in Market Basket |
Prices in Base Year |
Cost of Basket in Base Year |
Prices in Current Year |
Cost of Basket in Current Year |
| Twinkies |
365 packages |
$0.89/package |
$324.85 |
$0.79 |
$288.35 |
| Fuel oil |
500 gallons |
1.00/gallon |
500.00 |
1.50 |
750.00 |
| Cable TV |
12 months |
30.00/month |
360.00 |
30.00 |
360.00 |
|
|
|
$1,184.85 |
|
$1,398.35 |
Question 4- (Consumer Price Index) Given the following data, what was the value of the consumer price index in the base year? Calculate the annual rate of Consumer price inflation in 2013 in each of the following situations:
a. The CPI equals 200 in 2012 and 240 in 2013.
b. The CPI equals 150 in 2012 and 175 in 2013.
c. The CPI equals 325 in 2012 and 340 in 2013.
a. The CPI equals 325 in 2012 and 315 in 2013.