AP MACROECONOMICS CH 7 WORKSHEET (GDP) DIRECTIONS: Copy and paste the questions so that you can add your answers

and create a viable study reference. If you choose to answer the questions on paper, please attach the worksheet so that you have both questions and answers. You will lose points if you dont have both questions and answers together. Due Date: Jan. 29th. 1. Explain why an economys output is also its income? Because eventually everything that is produced is also sold. 2. Why do national income accountants : Include only final goods in measuring GDP in a particular year? Because many stuff are made of intermediate goods. So if intermediate goods were counted separately there would be multiple/ extra value added into gdp that shouldnt be there. The price of the final goods include that of the intermediate goods. Dont include the value of stocks and bonds bought and sold? Because they are not producing or selling anything. Trading stocks is merely transferring the ownership of existing stuff. Dont include the value of the used furniture bought and sold? Because used stuff were included in gdp the year they were made. Dont need to be counted again. 3. Why are changes in inventories included as part of investment spending? Suppose inventories declined by $1B during the current year. How would this affect the size of gross private domestic investment and gross domestic product in the current year (explain)? Because inventories are expected to be used by the companies to produce more stuff. So it counts as investment spending. And if 1b of inventory decline then you would subtract 1b from both the gdp and gross private domestic investment. You do this because if you do not subtract then that 1b will artificially inflate 2001s output. 4. Explain the following statement distinguishing gross investment and net investment: Though net investment can be positive, negative or zero, it is impossible for gross investment to be less than zero. Depreciation is always positive so gross investment which is either less than equal to or greater than depreciation thus cannot be less than zero. 5. Suppose foreigners spend $7B on US exports in a given year and Americans spend $5B on imports from abroad that same year. What is the amount of the USs net exports? +2billion Explain how net exports might be a negative amount. If the united states spend more money on imports than foreginros spend on us exports. So for example if us exports gained 8b and americans spent 9b on imports than there is a -1bil net export for the u.s. 6. Below is a list of domestic output and national income figures for a given year. All figures are in billions. Personal consumption expenditures Net foreign factor income earned in the US Transfer payments $245 $4 $12

Rents Consumption of fixed capital (depreciation) Social security contributions Interest Proprietors income Net exports Dividends Compensation of employees Indirect business taxes Undistributed corporate profits Personal taxes Corporate income taxes Corporate profits Government purchases Net private domestic investment Personal saving

$14 $27 $20 $13 $33 $11 $16 $223 $18 $21 $26 $19 $56 $72 $33 $20

Using the above data, determine GDP by both the expenditures and income approaches. Then determine NDP. GDP = 388 , NDP = 361

Determine NI first by subtracting from NDP and then by adding up the components of NI. NI =399 Determine PI and DI. PI = 291 , DI = 265 7. Suppose that in 1984 the total output in a single-good economy was 7,000 buckets of chicken. Also suppose that in 1984 each bucket of chicken was priced at $10. Finally, assume that in 1996 the price per bucket of chicken was $16 and that 22,000 buckets were purchased. Determine the GDP price index for 1984, using 1996 as the base year. By what percentage did the price level, as measured by this index, rise between 1984 and 1996? 62.5 price index for 1984. It rose by 60percent. 8. The following table shows nominal GDP and an appropriate price index for a group of selected years. Compute real GDP. Indicating in each calculation whether you are inflating or deflating the nominal GDP data. Year Nominal GDP Price Index Real GDP

Billions 1960 1968 1978 1988 1998 $ 527.4 911.5 2295.9 4742.5 8790.2

(1996=100) 22.19 26.29 48.22 80.22 103.22

Billions & +/$ ___2376.7___infl_____ 3467.1____infl____ _4761.3_____infl_____ 5911.9____infl_______ _8516_____defl_____