# Homework 2 – Macroeconomics Prof. Tafoya 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 Interest 29 Rents 26 Corporate profits 75 Corporate income taxes 28 Dividends 30 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.

Homework 2 – Macroeconomics

Prof. Tafoya

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

Interest 29

Rents 26

Corporate profits 75

Corporate income taxes 28

Dividends 30

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.