Ch5 problems

# Ch5 problems - Macro Module Chapter 5 Problems 2 a...

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11/8/10 Macro Module – Chapter 5 Problems

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11/8/10 2 a – Calculate the change in GDP n A family sells a home, without using a broker, for \$150,000. They could have rented it on the open market for \$700 per month. They buy a 10-year-old condominium for \$200,000; the broker’s fee on the transaction is 6 percent of the selling price. The condo’s owner was formerly renting the unit at \$500 per month. n a. The \$700 per month in imputed rent on the home and the \$500 in imputed rent on the condo are irrelevant to computing the change in GDP. While these housing units are changing hands, they are continuing to provide the same services as before. Similarly, the sales price of the home and the condo do not affect GDP, since these housing units were presumably produced (and counted in GDP) in some previous year. The sales commission on the condo—6% of \$200,000 = \$12,000—is the value of a currently produced service. Thus, GDP rises by \$12,000 .
11/8/10 2 b – Calculate the change in GDP n General Electric uses \$10 million worth of steel, glass, and plastic to produce its dishwashers. Wages and salaries in the dishwasher division are \$40 million; the division’s only other expense is \$15 million in interest that it pays on its bonds. The division’s revenue for the year is \$75 million. n b. Using the expenditure approach, GDP rises by \$75 million—the value of final sales. (Alternately, we could also use the factor payments approach, noting

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## This note was uploaded on 11/07/2010 for the course ECON 0001 taught by Professor Kitsikopoulos during the Spring '08 term at NYU.

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Ch5 problems - Macro Module Chapter 5 Problems 2 a...

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