PRINCIPLES OF MACROECONOMICSExam One - Spring 2000 Solutions to Part Two

1. Calculate Econoland's GDP. See the table below. Note that you
could use the income approach, but the expenditure approach is easier.
ANSWER: GDP = C+I+G+X-M.
Item
Wages paid to labor
Rent
Net Interest
Profits
Proprietors' Income
Net Domestic Income at Factor Cost
Indirect Taxes
Subsidies
Net Domestic Product at Market Prices
Depreciation
Gross Domestic Product -- Income app.
Consumption expenditure
Investment
Government purchases
Exports
Imports
Gross Domestic Product -- Expenditure app.
Saving
Net taxes
Injections
Leakages

Original Version 1 Version 2

800,000
4,900
5,300
40,000
500
200
20,000
200
400
60,000
800
900
50,000
600
500
970,000
7,000
7,300
40,000
620
830
10,000
20
30
1,000,000
7,600
8,100
100,000
900
1,100
1,100,000
8,500
9,200
650,000
300,000
200,000
250,000
300,000
1,100,000
200,000
250,000
750,000
750,000

5,800
1,400
1,450
1,000
1,150
8,500
1,200
1,500
3,850
3,850

2.

Calculate Econoland's Net Investment. Show your work below.

ANSWER: Net Investment =

Gross Investment

Original
Version 1
Version 2

300,000
1400
1600

3.

Calculate Econoland's Net Exports. Show your work below.

6,200
1,600
1,550
900
1,050
9,200
1,700
1,300
4,050
4,050

ANSWER: Net Exports = X - M = 250,000 - 300,000 = -50,000.

Calculate Econoland's private savings, S. Show your work below.

GDP

minus Net Taxes

Version 1
Version 2

8500
9200

1500
1300

4.

Calculate Econoland's National Savings. Show your work below.

ANSWER: National Saving = 250,000.You first need to find S = Y T - C = 1,100,000 - 250,000 - 650,000 = 200,000Next, substitute
into the formula for National Savings = S + ( T - G ) = 200,000 +
(250,000 - 200,000) = 250,000

Savings

plus Net Taxes

Version 1
1200
1500
Version 2
1700
1300
Alternatively, one could start with Leakages = Injections, and solve for S
from there.

5.

EXTRA CREDIT:
Sea Island produces only lobsters and crabs.
The base year is 1997, and the tables give the quantities produced
and the prices.

Quantity of Good

1997

1998 Price of Good

Lobsters

1000

1200 Lobsters

Crabs

660

600 Crabs

1997

1998

$20

$30

$10

$10

a.
Good

(2 points) Calculate GDP in 1997 at 1997 prices.

Quantity97

Price97

product

1000

$20

20000

660

$10

6600

Lobsters
Crabs
GDP97 and real GDP97

26600

b.
Good

(2 points) Calculate GDP in 1998 at 1998 prices.

Quantity98

Price98

product

1200

$30

36000

600

$10

6000

Lobsters
Crabs
GDP98

42000

c.
(4 points) Calculate real GDP in 1998. To calculate the
chain-weighted output index, first compute the value of the '98
quantities at '97 prices.
Good

Quantity98

Price97

product

1200

$20

24000

600

$10

6000

Lobsters
Crabs
'98 quantities at '97 prices

30000

Divide this result by GDP97: 30000/26600 = 1.12782. This

shows that output grew by almost 12.8% when valued at '97
prices. Next, compute the value of the '97 quantities at '98
prices.

Good

Quantity97

Price98

product

1000

$30

30000

660

$10

6600

Lobsters
Crabs
'97 quantities at '98 prices

36600

Divide this result into GDP98: 42000/36600 = 1.14754. This

shows that output grew by almost 14.8% when valued at '98
prices. Next, compute the geometric mean . This is the chainweighted output index. It shows that real GDP grew by almost
13.8%. Finally, multiply real GDP in 1997 by the chainweighted output index to get real GDP in 1998:
d.
(2 points) Calculate and interpret the GDP deflator in
1998.
The GDP deflator, GDPD equals 138.79 in 1998. This shows
that the average price level has risen by 38.79% since the
base year.
Exam I, Spring 2000: Extra credit problem -- Retake Version 1
Quantity of Good
1997
1998 Price of Good
Lobsters
1100
1400 Lobsters
Crabs
770
700 Crabs
Q97 x P97

$29,700 GDP97 & real GDP97

Q97 x P98

$33,550

Q98 x P97

$35,000

Q98 x P98

$38,500 GDP98

indexofoutput 1.1784511
usingP97
8
indexofoutput 1.1475409
usingP98
8
Geometric
Mean

1.1628933
Chainweightedoutputindex.
8

1997
$20
$10

1998
$20
$15

RealGDPgrewby16.3%from1997to1998.
realGDP98
$34,537.93
111.47163
7
Thepricelevelroseby11.5%from1997to1998.

GDPDeflator

ExamI,Spring2000:ExtracreditproblemRetakeVersion2
Quantityof
1997
1998 PriceofGood
1997
Good
Lobsters
1200
1400 Lobsters
$20
Crabs
880
800 Crabs
$10
Q97xP97
Q97xP98
Q98xP97
Q98xP98

$32,800 GDP97&realGDP97
$37,200
$36,000
$40,000 GDP98

indexofoutput 1.0975609
usingP97
8
indexofoutput 1.0752688
usingP98
2
Geometric
1.0863577
Chainweightedoutputindex.
Mean
2
RealGDPgrewby8.6%from1997to1998.
realGDP98
$35,632.53
112.25696
4
Thepricelevelroseby12.6%from1997to1998.
GDPDeflator

1998
$20
$15