ECO 1102 Lecture 5: Chapter 7 (cont'd)

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21 Jan 2019

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ECO 1102 Lecture Notes - Lecture 4: Aggregate Demand, Government Spending

ECO 1102 Lecture 5: Chapter 7 (cont'd)

ECO 1102 Lecture Notes - Lecture 6: Environmental Degradation, Externality, Gdp Deflator

Document Summary

Eco1102 lecture 5 - chapter 7 part 2 - measuring the wealth of nations. There is a probability for one economic representative to chip in to consumption. Expenditure, investment expenditure, net exports, as well as government spending, concurrently, that is to say for instance, one can be either a consumer, investor, and an importer. Henceforth, in order to categorize spending, you have to figure out which box to put each in such as consumption expenditure, investment expenditure, net exports, and. It is never always the individuality of the spender that matters, however, the essence of the good or service being purchased. Y (aggregate income) is dissected into the following elements such as: Factors payments : the income people receive for supplying the factors of production: land, labour, capital or entrepreneurship. This involves salaries and wages to labour; rent to landlords and landladies; interest and dividends to investors; and profits to entrepreneurs.

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Assume that the equations below describe the expenditures within a particular macroeconomy and that these equations conform to the assumptions we've made in the lecture regarding the fixed price level Aggregate Expenditure model. All values for expenditure and income are dollar amounts, but for simplicity, we've dropped the $ below.

C = 0.8(DI) + 1000	C = Consumption expenditure, DI = Disposable Income
I = 2000	I = Investment expenditure
G = 1000	G = government expenditure
X = 1600	X = spending on exports
M = 1800	M = spending on imports
DI = Y - T	Y = real GDP, T = tax revenues/>
T = 1000
Yp = 12000	Yp = Potential GDP

Given the equations above, we can describe the GDP, government budget, and net exports in this economy. Select three characteristics from the list below which accurately describe this economy. Note that there is no partial credit on this question. I.e., your answer will either be all correct, or all wrong.

	a.	inflationary gap
	b.	recessionary gap
	c.	no output gap
	d.	government budget surplus
	e.	government budget deficit
	f.	balanced government budget
	g.	trade deficit
	h.	trade surplus
	i.	net exports of zero

pucearmadillo585

1. Provide the formula for the expenditure approach to GDP accounting and include an example of each category of spending.

2. Suppose a consumer buys 10 units of good X and 20 units of good Y every year. The following table lists the prices of goods X and Y in the years 2005-2007. Assume that these two goods constitute the typical market basket. Calculate the price indices for these years with 2005 as the base year. Comment on the inflation picture for these years.

Year	Good X	Good Y
2005	$3	$6
2006	4	7
2007	4.5	7.5

3. Using the expenditure approach, calculate GDP using the following data.

Item	Amount in dollars (billions)
Consumption	7,600
Consumption of Durable Goods	1,600
Consumption of Non Durable Goods	2,800
Consumption of Services	3,200
Investment	2,750
Fixed Investment	1,000
Government purchases of Goods & Services	1,675
Government Transfer Payments	450
Exports	750
Imports	1,600
GDP Equals

4. a. What is the importance of measuring per capita GDP?

b. Why nominal GDP can be misleading?

emeraldkangaroo112

Question 1 Gross domestic product (GDP) measures the economy's production of

A) final goods and services.

B) intermediate goods.

C) consumer goods and services.

D) capital goods.

Question 2 Because GDP is measured in dollars per year, GDP is called a

A) stock.

B) flow.

C) cycle.

D) chain.

Question 3 Which of the following would not be included in the gross private domestic investment (I) category of GDP?

A) A retailer's additions to its inventories.

B) A bakery's purchase of a new oven.

C) A trader's purchase on NASDAQ stocks.

D) Newly built residential construction.

Question 4 Which of the following government payments would be included in the government consumption expenditures and gross investment (G) category of GDP?

A) A firefighter's monthly paycheck.

B) A retired grandmother's Social Security check.

C) A retired colonel's veteran's benefits.

D) A laid-off auto worker's unemployment conpensation check.

Question 5 The largest component in the income approach to measuring GDP is

A) compensation of employees.

B) rents.

C) profits.

D) net interest.

Question 6 Which approach to calculating GDP attempts to measure employee compensation, rents, profits, and net interest?

A) The circular-flow approach.

B) The product-market approach.

C) The income approach.

D) The expenditure approach.

Question 7 In recent years, people have benefited from greater amounts of leisure time. This trend

A) has caused GDP to rise.

B) has caused GDP to fall.

C) made GDP fluctuate randomly.

D) is not accounted for in the GDP statistic.

Question 8 National income (NI) is calculated by adjusting GDP for

A) depreciation of capital.

B) investment and net exports.

C) Social Security insurance contributions and transfer payments.

D) corporate and personal income taxes.

Question 9 If an economy's real GDP has increased, we can conclude that the economy

A) is inflationary.

B) has increased its production.

C) suffers from recession.

D) needs a tax cut.

Question 10 In the circular flow model, investment, government spending, and exports are classified as

A) injections.

B) leakages.

C) transfers.

D) consumption expenditures.

ECO 1102 Lecture 5: Chapter 7 (cont'd)

ECO 1102 Lecture Notes - Lecture 4: Aggregate Demand, Government Spending

ECO 1102 Lecture 5: Chapter 7 (cont'd)

ECO 1102 Lecture Notes - Lecture 6: Environmental Degradation, Externality, Gdp Deflator

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