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Unformatted text preview: Economics 154a, Spring 2005 Intermediate Macroeconomics MIDTERM EXAMINATION: Answer Key 1. (20 points) Your task in this problem is to construct national product and income accounts... ANSWER: Table 1 shows how to calculate GDP for each of these countries. The crucial elements to know are that GDP = C + G + I + NX , that I = 0 since firms use up all the intermediate goods they buy and sell all the output they produce, that consumption consists of consumption of national AND foreign goods, that S = Y- C- G , and that GNP = GDP + NFP . Table 1: Income and Product Accounts US Steel USAuto JapanAuto Wages 1500 to Americans 4000 to American 2500 to Japanese Inputs 2000 from USSteel 4000 from USSteel Capital Purchases Depreciation Production 6000 8000 9500 Sales 4000 to JapanAuto 5500 to US 5000 to US 2000 to USAuto 1000 to Japan 3500 to Japan 1500 to USGov 1000 to JapanGov Profits 4500 2000 3000 US Expenditure Approach Consumption 5500 5000 10500 Investment Government 1500 1500 Net Exports 4000 1000-5000 US GDP 12000 Japan Expenditure Approach Consumption 1000 3500 4500 Investment Government 1000 1000 Net Exports-4000-1000 5000 Japan GDP 5500 US: Income Approach Total Wages 1500 4000 5500 Profits 4500 2000 6500 Depreciation NFP US GDP 12000 Japan: Income Approach Wages 2500 2500 Profits 3000 3000 Depreciation NFP Japan GDP 5500 US Savings Identity Japan Savings Identity S (Y-C-G) US GNP Japan GNP GNP=GDP+NFP 12000 GNP=GDP+NFP 5500 1 Note that in calculating GDP by the expenditure approach you get C,G,I, and NX as its components an can the skip the income approach calculations. Finally note that Net Factor Payments (NFP) are zero, not only because there are no workers working for foreign corporations, but also because there are no foreign corporations working in the US or Japan. Any payment to national factors not located domestically is counted in NFPs....
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- Spring '07