PS3 - Economics 102 Introductory Macroeconomics Spring 2005...

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Economics 102 Introductory Macroeconomics - Spring 2005, Professor J. Wissink Problem Set 3 Multiple Choice/True and False 1. Tom just bought shares of Google stock for $2,000 and paid a $30 commission to his broker. How did this affect GDP? a) GDP increased by $2030. b) GDP increased by $2000. c) GDP increased by $1970. d) GDP increased by $30. 2. An economy which is experiencing rising rates of unemployment and inflation would be said to be in a period of: a) inflation b) recession c) stagflation d) hyperinflation 3. Which of the following are examples of intermediate goods? (There is more than one in this list.) a) a book written by your favorite author purchased by you b) dough bought by a housewife to bake a cake for her daughter’s birthday c) dough bought by a chef to bake a cake at his restaurant d) a set of screwdrivers purchased by a small firm e) wood purchased by a professional carpenter 4. True or False and EXPLAIN: The $15,000 spent by a furniture firm in replenishing their inventories is not counted in GDP since it is neither consumption, nor investment, nor government expenditures. 5. True or False and EXPLAIN: The income of foreigners working in the U.S. is counted in the U.S. GNP as long as those foreigners work for a U.S. company. 6. True or False and EXPLAIN: Final sales of $10,000 worth of cocaine are counted in the GDP calculations because its production involved the 4 factors of production. 1
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Long Questions 7. The small and isolated island of Bithaca has no contact with the outside world. Only two firms operate in this economy: Joe & Bros. Farm which produces wheat, and Big Bakery, which makes bread (the only final product in the economy) using the wheat provided by Joe & Bros. Farm. The following data are given for the year 2005. Joe & Bros. Big Bakery ($) ($) Total output 50,000 150,000 Total Expenses Wages 27,000 51,500 Rent & Interest 4,000 9,000 Intermediate Goods Purchased 0 ? a) Answer the following questions: i. What is the value of the intermediate goods purchased by Big Bakery? ii. What is the value added to GDP by Joe & Bros.? iii. What is the value added to GDP by Big Bakery? iv. What is the GDP for Bithaca? Show your calculations. v. What is the GNP for Bithaca? Show your calculations. b) Assume that although Big Bakery produces $150,000 worth of bread it is only able to sell $125,000. The remaining $25,000 thousands worth of bread is stored. What is the GDP of Bithaca now? c) Suppose that the owners of Joe & Bros. Farm inherit 10,000 shares in AT&T. In 2005 they receive $5,500 in the form of dividends. How does this change the GDP of Bithaca? 8. 1Suppose the following data apply to the United States for the year 2004 (all figures are in billion of dollars).
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