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Microsoft Word - Solution-Chapter-4

# Microsoft Word - Solution-Chapter-4 - Chapter 21 1 Figure...

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1 C h a p t e r 2 1 1. Figure 4.1 above shows the flows of expenditure and income in the United States. During the second quarter of 2007, B was \$9,658 billion, C was \$2,147 billion, D was \$2,656 billion, and E was \$723 billion. Name the flows and the calculate Flow A is aggregate income; Flow B is consumption expenditure; Flow C is government expenditure; Flow D is investment; Flow E is net exports. a. Aggregate expenditure. Aggregate expenditure is \$13,738 billion. Aggregate expenditure is the sum of consumption expenditure (Flow B ), investment (Flow D ), government expenditure (Flow C ), and net exports (Flow E ). Thereforeaggregateexpenditureequals\$9,658billionplus\$2,656 billion plus \$2,147 billion plus \$723 billion, which is \$13,738 billion. b. Aggregate income. Aggregate income is \$13,738 billion. Aggregate income equals aggregate expenditure, which from part a is \$13,738 billion. c. GDP. GDP is \$13,738 billion. GDP equals aggregate expenditure, which from part a is \$13,738 billion.

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2 2. In Figure 4.1, during the second quarter of 2008, B was \$10,144 billion, C was \$1,980 billion, D was \$2,869 billion, and E was \$737 billion. Calculate the quantities in problem 1 during the second quarter of 2008. Aggregate expenditure is \$14,256 billion. Aggregate expenditure is the sum of consumption expenditure (Flow B ), investment (Flow D ), government expenditure (Flow C ), and net exports (Flow E ). Therefore aggregate expenditure equals \$10,144 billion plus \$2,869 billion plus \$1,980 billion plus \$737 billion, which is \$14,256 billion. Aggregate income is \$14,256 billion. Aggregate income equals aggregate expenditure, which is \$14,256 billion. GDP is \$14,256 billion. GDP equals aggregate expenditure, which is \$14,256 billion. 3. InFigure4.1,duringthesecondquarterof2006, A was\$13,134 billion, B was \$9,162 billion, D was \$3,340 billion, and E was \$777 billion. Calculate a. Aggregate expenditure. Aggregate expenditure is \$13,134 billion. Flow A is aggregate income and aggregate income equals aggregate expenditure. b. Aggregate income. Aggregate income is \$13,134 billion. c. GDP. GDP is \$13,134 billion. GDP equals aggregate expenditure, which from part a is \$13,134 billion. d. Government expenditure. Government expenditure is \$1,409 billion. Aggregate expenditure is the sum of consumption expenditure (Flow B ), investment (Flow D ), government expenditure (Flow C ), and net exports (Flow E ). Therefore government expenditure equals aggregate expenditure minusconsumptionexpenditureminusinvestmentminusnetexports, Government expenditure equals \$13,134 billion minus \$9,162 billion minus \$3,340 billion minus \$777 billion, which is \$1,409 billion.
3 4. The firm that printed this textbook bought the paper from XYZ Paper Mills. Was this purchase of paper part of GDP? If not, how does the value of the paper get counted in GDP? The printing firm’s purchase of paper is the purchase of an intermediate good and so the value of the paper is not (directly) included in GDP. The value of the paper is included in GDP as part of the value of the textbooks that the company produces.

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