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Unformatted text preview: 10 Gordon Macroeconomics, Eleventh Edition emphasis was put on the discussion of the implicit GDP deflator. In the summary, Points 1, 5 and 10 have been revised, three points have been deleted, and the rest were renumbered. The Appendix has been added at the end of Chapter 2. Here the author has emphasized the role of price indices and exhibited how to calculate the real GDP and GDP deflator from specific price and quantities of individual products in a more detailed way. Answers to Questions in Textbook 1. A flow magnitude moves from one economic unit to another over a period of time. A stock magnitude is in the possession of a given economic unit at a particular point in time. (a), (b), (e), (f), (j), (k), (l) are flows. (c), (d), (g), (h), (i) are stocks. 2. a. No, the peaches are an intermediate good in the production of peach ice cream by the peach maker. b. Yes, the new machine is part of private investment. c. Yes, your purchase of ice cream is part of consumption expenditures. d. No, the peach ice cream is an intermediate good in the production of peach smoothies. e. Yes, your cousins purchase is an export for the United States. f. No, only currently produced books would be included in GDP. g. Yes, the peaches are part of consumption, but the value of the time you spend in making the ice cream is not included in GDP. h. Yes, but unlike the purchase of the machine by a business, your purchase of the ice cream maker would be part of consumption expenditures and not private investment. i. No, you are giving a gift to your cousin; the ice cream was not sold on the market. 3. a. The salary would be included in GNP, but not GDP, since it is income that is earned by an American from production that takes place in Japan. b. The profits would be included in GDP, but not GNP, since it is income earned by a foreign company on production that takes place in the United States. c. The software is part of exports, which is included in both GDP and GNP. 4. The Europeans are buying goods and services produced in the United States. This makes these purchases part of our exports. Similarly, when an American on vacation in Ireland buys an Irish sweater, that is equivalent to an American who buys the same sweater in a store in the United States that specializes in clothes imported from Ireland. 5. There are at least two reasons why you cannot compare the well-being of the average individual in the two countries simply by comparing the GDPs of the two countries. The first is that the populations of the two countries are different. In particular, the population of China is approximately four times larger than that of the United States. Therefore, if the real GDP of the United States is twice as large as Chinas, the amount of output for each person in the United States is eight times as large as the amount of output for each person in China....
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- Spring '08