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Unformatted text preview: Econ 1, Fall 2010 Sample Final Exam Solutions University of California, Berkeley Page 1 of 19 Sample Final Exam Solutions 1. Explain whether or not, why, and how the following items are included in the calculation of GDP: a. Increases in business inventories. Increases in business inventories are counted in the calculation of GDP so that new goods that are produced but go unsold are still counted in the year in which they are produced. Specifically, they count in I . b. Fees earned by real estate agents on selling existing homes. While the sale of existing homes is not counted in GDP (since the homes werent produced during the year in question), the service rendered by real estate agents needs to be counted. Thus the fees earned by real estate agents does count in the calculation of GDP, even when the transaction brokered is for an existing home. c. Building of a new dam by the Army Corps of Engineers. The goods and services purchased by the government to build the dam will count in the calculation of GDP (in G ), but the value added over and above the cost of labor and materials is not counted. d. An economist earning $2,000 by giving a speech to members of San Francisco's Commonwealth Club. An economist earning $2,000 by giving a speech to San Franciscos Commonwealth Club is producing a final service, and the fee will be counted in the calculation of GDP (specifically, in C ). e. An economist earning $2,000 by giving a luncheon talk to the Strategy Committee of Standard Oil of Euphoria. Training the Strategy Committee of Standard Oil of Euphoria by having them listen to lectures is not classified as an "investment" that builds its productive capacity (but perhaps it should be). It is considered an intermediate good and is not counted in GDP calculations. f. Interest you pay on the mortgage they have on their house. Like all interest paid by households and the government, interest on a homeowners mortgage is not counted in the calculation of GDP since it is not assumed to flow from the production of goods and services. g. Purchase of a remaindered item from inventory by T.J. Maxx from American Apparel. Remaindered items are bought and sold in a secondary market, and are thus not counted in the calculation of GDP. No new items are being produced. The items were counted when they entered American Apparels inventory, and counting them when they are sold to T.J. Maxx would double count them. Econ 1, Fall 2010 Sample Final Exam Solutions University of California, Berkeley Page 2 of 19 2. Solve for the equilibrium level of real GDP Y in the Keynesian framework where: Y = C + O , C = c o + c y Y : a. With c o = $6 trillion/year, c y = 1/3, and O = $6 trillion/year g G = + = + = = , , _ $ / b. With c o = $4 trillion/year, c y = 1/3, and O = $4 trillion/year g G = + = + = = , ,...
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This note was uploaded on 10/04/2011 for the course ECON 1 taught by Professor Martholney during the Fall '08 term at University of California, Berkeley.
- Fall '08