20072prbset1

# 20072prbset1 - METU Department of Economics Econ 202...

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METU Department of Economics Econ 202 Macroeconomic Theory Instructors: Ebru Voyvoda and Ş irin Saraço ğ lu Teaching Assistant: Gizem Ko ş ar 2007-2008 Spring Semester Problem Set 1 (OB Chapters 1-2) Question 1: National Accounts Suppose that the country of Macronia has three industries: bananas, tires, and cars. (Macronia is a closed economy, both with respect to capital and goods flows.) Macronia's population is 10,000. Bananas are produced by independent farmers, and the country produces 17 million bananas in a year, all of which are consumed by Macronia's banana- loving households. Tires are made by independent entrepreneurs from worthless junk. The total value of tires produced in a year is 38 million TRY. These tires are in turn purchased entirely by Macronia's car assembly plant. The car assembly plant turns out 62 cars a year, hiring workers and paying a total of 10 million TRY per year in wages. The market price of a car is 3 million TRY and the market price of a banana is 2 TRY. a) Calculate Macronia's GDP using the final sales definition of GDP b) What is Macronia's GDP per capita? c) Compute value-added in each industry, and in the economy as a whole. Does your answer make sense? Why? Question 2: National Accounts Compute the GDP and its components as measured by expenditure, income and production in each case given below. For the production side, make sure you compute value-added for each firm. Make sure that you arrive at the same number with each way of computing GDP! Imagine that there are two firms in the economy. One of them is a brewery, the other one produces computers. The brewery produces 10000 bottles of beer, sells 6000 of them to consumers, 2000 to the computer factory and 2000 are still unsold at the end of the year. The price per bottle sold is \$2. The brewery buys two computers from the computer company for \$3000 and pays wages amounting to \$4000. The brewery also delivers additional 10 kegs to the computer factory for \$200 each and pays indirect taxes in the amount of \$500. Depreciation of capital amounts to \$1000. The computer company builds 10 computers, two of which are sold to the brewery, six are sold to consumers for \$1500 each and two are unsold at the end of the year. The computer company also buys beer as mentioned above for the annual company picnic. The total amount of wages in the economy is \$10000 and depreciation of capital is \$2000. There are no other transactions in the economy apart from those mentioned above.

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2 Question 3: National Accounts In Orangeland, a closed economy, Orangelanders live only on orange juice. There is a farm that produces oranges and a factory that produces Orange Juice (OJ). In 2006, the orange farm produced 10 oranges, and sold them to the orange juice company at 1 TRY each. The orange juice company produced 3 bottles of orange juice, and sold them all at a unit price of 10 TRY plus 10% indirect tax collected by government (so the price paid was actually 11 TRY). The orange farm paid total wages of 6 TRY. The orange juice
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## This note was uploaded on 05/26/2010 for the course ECON 202 taught by Professor Tunc during the Spring '10 term at Middle East Technical University.

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20072prbset1 - METU Department of Economics Econ 202...

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