Homework 2 – Macroeconomics
Problem 1 (each part is worth 5 points) :
Suppose the government’s national income and product accounts revealed the following information:
Personal consumption expenditures 525
Gross private domestic investment 110
Consumption of fixed capital (depreciation) 31
Government purchases 72
Net exports -15
Compensation of employees 462
Proprietors’ income 59
Corporate profits 75
Corporate income taxes 28
Undistributed corporate profits 17
Net foreign factor income 12
Transfer payments 33
Social Security contributions 39
Taxes on production and imports 22
Personal taxes 71
Personal saving 4
a. Using the data in the table, verify that the income approach and the expenditure approach yield the same measure of GDP.
b. Find NDP by making the appropriate adjustment to GDP.
c. Verify that National Income can be found either by making the appropriate adjustments to NDP or by adding up the appropriate components of income and taxes.
d. Find PI, personal income, by making the appropriate adjustments to NI.
e. Make the appropriate adjustment to PI to find DI, disposable income.
f. Verify that DI is the sum of personal consumption expenditures and personal saving.
Problem 2 (each part is worth 5 points):
Suppose an economy produces only one good. In the base year, production was 8 units at a price of $10 each. The next year, production increased to 9 units and the price of the good increased to $12.
a. Find nominal GDP in years 1 and 2.
b. If the price index is 100 in the base year, what is the value of the price index in year 2?
c. Find real GDP in year 2.
Suppose a hypothetical national economy can be represented by the following data:
Year Nominal GDP Price Index (2000 = 100) Real GDP
2007 $1536 128
2008 $1663 132
2009 135 $1274
2010 $1792 140
d. Find real GDP in years 2007, 2008, and 2010.
e. Find nominal GDP in year 2009.