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Unformatted text preview: AEB 2014: Economic Issues, Food and You Answers to Problem Set # 4 Professor: Carlos Pitta Page 1 Here are the suggested answers to your problem set # 4. Of course, your working and mine would differ, but as long as you recognized in your answers the basic economic principles involved, you answer is as valid as mine. Carlos Pitta Chapter 23/Measuring a Nations Income 1. a. Consumption increases because a refrigerator is a good purchased by a household. b. Investment increases because a house is an investment good. c. Consumption increases because a car is a good purchased by a household, but investment decreases because the car in Fords inventory had been counted as an investment good until it was sold. d. Consumption increases because pizza is a good purchased by a household. e. Government purchases increase because the government spent money to provide a good to the public. f. Consumption increases because the bottle is a good purchased by a household, but net exports decrease because the bottle was imported. g. Investment increases because new structures and equipment were built. 3. If GDP included goods that are resold, it would be counting output of that particular year, plus sales of goods produced in a previous year. It would double-count goods that were sold more than once and would count goods in GDP for several years if they were produced in one year and resold in another. 5. Year Nominal GDP (billions) GDP Deflator (base year: 1996) 2000 $9,873 118 1999 $9,269 113 a. The growth rate of nominal GDP is ($9,873 $9,269)/$9,269 100% = 6.5%. b. The growth rate of the deflator is (118 113)/113 100% = 4.4%. c. Real GDP in 1999 (in 1996 dollars) is $9,269/(113/100) = $8,203. d. Real GDP in 2000 (in 1996 dollars) is $9,873/(118/100) = $8,367....
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- Spring '09