1. (Supply-Side Economics) One supply-side measure introduced by the Reagan administration was a cut in income tax rates. Use and aggregate demand/aggregate supply diagram to show what effect was intended. What might happen if such a tax cut also shifted the aggregate demand curve?
2. (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
3. Expenditure Approach to GDP) Given the following annual information about 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
Governments 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?
4. (Consumer Price Index) Calculate a new consumer price index for the data in the follow 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?
5. (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 the 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.
d. The CPI equals 325 in 2012 and 315 in 2013.
References
McEachern, W. A. (2015). ECON macroeconomics (4th ed.). Stamford, CT: Cengage Learning