Problem 1: National Income Accounting: Define gross domestic product. Determine whether each of the following would be included I the 2007 U.S. gross domestic product:
a. Profits earned by Ford Motor Company in 2007 on automobile production in Ireland.
b. Automobile parts manufactured in the United States in 2007 but not used until 2008.
c. Social Security benefits paid by the U.S. government in 2007
d. Ground beef purchased and used by McDonald’s in 2007
e. Ground beef purchased and consumed by a private U.S. household in 2007
f. Goods and services purchased in the United States in 2007 by a Canadian tourist
Problem 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?
Problem 3: Types of unemployment: Determine whether each of the following would be considered frictional, structural, seasonal, or cyclical unemployment:
a. A UPS employee who was hired for the Christmas season is laid off after Christmas.
b. A worker is laid off due to reduced aggregate demand in economy.
c. A worker in a DVD rental stores becomes unemployed as video-on-demand cable service becomes more popular.
d. A new college graduate is looking for employment.
Problem 4: Inflation: Here are some recent data on the U.S. consumer price index:
Year CPI Year CPI Year CPI
1988 118.3 1994 148.2 2000 172.2
1989 124.0 1995 152.4 2001 177.1
1990 130.7 1996 156.9 2002 179.9
1991 136.2 1997 160.5 2003 184.0
1992 140.3 1998 163.0 2004 188.9
1993 144.5 1999 166.6 2005 195.3
2006 201.8
Compute the inflation rate for each year 1989-2006 and determine which were years of inflation. I which years did deflation occur? In which years did disinflation occur? Was there hyperinflation in any year?