2020-400 Econ Principles of Macroeconomics Spring 2008 Recitation Worksheet 2 1. Which of the following statements is true? a.) In the circular-flow diagram of the economy, the flow of money into each market or sector is not necessarily equal to the flow of money coming out of each market or sector. b.) GDP in the United States includes income earned by American citizens living in foreign countries during a given time period. c.) GNP in the United States measures the value of final goods and services produced within U.S. borders during a given time period. d.) None of the above is true. 2. Suppose Country A sells $100 million worth of goods and services to Country B. Country B sells $50 million worth of goods and services to Country A. These are the only two countries n Macro World. Then, a.) net exports in Country B equal -$50 million. b.) net exports in Country A equal $150 million. c.) net exports in Country A equal -$50 million. d.) net exports in Country B equal $50 million. Use the information and the following table to answer the next 3 questions. The table represents data about an economy's performance during a year. Suppose in the economy represented in the table three are only 3 firms: American Racquet co., which produces tennis racquets; American Metal Co., which produces the various metals that go into racquet production; and American Ore Co., which mines the ores needed for manufacture of the metal. This economy produces 100 racquets that ssell for $50 each. Year Value of sales Intermediate Goods Wages Interest Payments Rent Profit Total Expenditures by Firm Value Added per Firm American Racquet Co $5000 A $1200 $100 $500 $200 $5000 G American Metal Co $3000 B $1000 $50 $100 $1350 $3000 H American Ore Co $500 $100 $20 $50 $330 $500 I Total factor income
C D E F
3. GDP for this economy is: a.) $5,000 or the value of sales for American Racquet b.) Co. $8,500 or the sum of the value added for the three firms. c.) $3,500 or the value of the intermediate goods used by the American Racquet Co. d.) $980 or the sum of the profits for the three firms. 4. GDP can be measured using different methods. If you were using the factor payments' approach, which entries would you combine to get a measure of GDP? a.) G, H & I b.) A & B c.) A,B,C, & D d.) C,D, E, & F
5.) GDP can be measured using the value added method. Using this method, which of the following values are correct for the missing entries in the table? a.) A = $3,000, B= $3,000,G= $2,000, H= $0, I=$500 b.) A=$3,000, B= $500, G=$2,000, H=$2500, I=$500 c.) A= $3,000, B= $3,000, G= $0, H=$4,500, I = $500 d.) A= $3,000, B=$500, G=$0, H= $4,500, I=$500
6.) At Macro U, the price index is based upon a market basket consisting of 10 red plastic cups, 2 cases of beer, and 5 burritos. You are given prices for these three items for 2004, 2005, and 2006 in the following table. Year 2004 2005 2006 Price of Cups $0.50 $0.52 $0.49 Price of Beer $4.00 $3.85 $3.90 Price of Burritos $1.00 $1.10 $1.30
a.) Fill in the following table using year 2004 as your base year. Year 2004 2005 2006 Cost of market basket Price index value
b.) Using the information you computed in part a, what was the rate of inflation between 2004 and 2005?
c.) Using the information you computed in part a, what was the rate of inflation between 2005 & 2006?
d.) Fill in the following table using year 2005 as your base year. Year Cost of market basket 2004 2005 2006
Price index value
e.) Using the information you computed in part a, what was the rate of inflation between 2004 and 2005?
f.) Using the information you computed in part a, what was the rate of inflation between 2005 & 2006?
g.) Compare your answers in parts b and c to your answers in parts e and f.