Handout 2 Key

# Handout 2 Key - Econ 3140 Fall 2009 Handout#2 Answer Key 1...

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Econ 3140 Fall 2009 Handout #2 Answer Key 1. Inventories are valued at the cost of production, so the 1000 canoes in inventory were valued at \$1000 each, for a total of \$1 million. Four thousand canoes at \$1250 each were used up as an intermediate good), and corn worth \$55 million was grown. So total GDP (in millions) was \$1 + \$5 + \$27 + \$55 = \$88 million. 2. Use the Savings Identity and the National Savings Formulas: Savings Identity ) S = S p + S g (Savings= Private Savings + Government Savings) National Savings Formulas ) S = I + CA (Savings= Investment + Current Account) There is a government budget de&cit of \$134 billion (i.e. Government Sav- ings of -\$134 billion) 3. Nominal GDP Year 1= ( Q M 1 P M 1 ) + ( Q B 1 P B 1 ) = (500 2) + (2000 1) = 3000 Nominal GDP Year 2= ( Q M 1 P M 1 ) + ( Q B 2 P B 2 ) = (900 3) + (3000 2) = 8700 Nominal GDP growth= (Nominal GDP Year 1 / Nominal GDP Year 2) -1
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