{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

# answer key prelim review - Economics 3140 Suggested...

This preview shows pages 1–4. Sign up to view the full content.

Economics 3140 Suggested Solutions to Practice Prelim 1 and Additional Review Questions February 10, 2009 1. (a) Yes - Since the production by General Motors takes place in America, it is a part of American GDP. (b) No - Since production of Toyota takes place in Japan. (c) No - GDP does not take into account services that are not priced in the market. (2 points for each part - Total 6 points) 2. (a) Income Method - Sum of factor incomes = Wages + Interests = (\$6 + \$2 + \$9) + (\$4 + \$8 + \$1) = \$30 : Value Added Method - Value added at each stage of production TIRE = \$(10 0) = \$10 ( Stage 1) + CAR 1 + CAR 2 TIRE = \$(17 + 13 10) = \$20 ( Stage 2) = ) Total = \$(10 + 20) = \$30 : Final Sales Method - Sale of Final Goods = CAR 1 + CAR 2 = \$(17 + 13) = \$30 : (3 points for each approach, total 9 points) 1

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
(b) Now we know from the basic National Income Accounting Iden- tity: GDP = C + I + G: Also, we know government purchases = G = \$2 + \$1 = \$3 : = ) C + I = \$30 \$3 = \$27 : Since CAR1 is the consumption good, total expenditure on CAR1(Govt consumption expenditure + Private consumption expenditure) equals: \$7 + \$8 + \$2 = \$17 : Now, out of this, we know government consumption expenditure is \$2. Therefore, private consumption expenditure is C = \$17 \$2 = \$15 : Next, since CAR2 is the capital good, total investment expendi- ture is \$3 + \$9 + \$1 = \$13 : Out of this total, we know government investment expenditure is \$1. Hence domestic private investment is I = \$13 \$1 = \$12 : (3 points each for C and I , total 6 points) 3. NGDP 1999 = X ( P 1999 ± Q 1999 ) = \$65 : RGDP 1999 = X ( P 1998 ± Q 1999 ) = \$25 : The GDP de±ator of 1999 is thus the ratio of NGDP 1999 and RGDP 1999 : GDPDeflator 1999 = NGDP 1999 RGDP 1999 ± 100 = 65 25 ± 100 = 260 : 2
(b) The CPI of 1999 (base year = 1998) is the ratio of total consump- tion expenditures on the 1998 bundle of commodities at 1999 and 1998 prices: CPI 1999 = P P 1999 Q 1998 P P 1998

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 8

answer key prelim review - Economics 3140 Suggested...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online