ECO 102 Principles of Macroeconomics (Problems and Applications)

  1. What components of GDP (if any) would each of the following transactions affect? Explain.A family buys a new refrigerator.
    Aunt Jane buys a new house.
    Ford sells a Mustang from its inventory.
    You buy a pizza.
    California repaves Highway 101.
    Your parents buy a bottle of French wine.
    Honda expands its factory in Marysville, Ohio.
  2. As the chapter states, GDP does not include the value of used goods that are resold. Why would including such transactions make GDP a less informative measure of economic well-being
  3. A farmer grows wheat, which she sells to a miller for $100*. The miller turns the wheat into flour, which she sells to a baker for $150* . The baker turns the wheat into bread, which she sells to consumers for $180* . Consumers eat the bread.a. What is GDP in this economy? Explain.
    b. Value added is defined as the value of a producer’s output minus the value of the intermediate goods that the producer buys to make the output. Assuming there are no intermediate goods beyond those described above, calculate the value added of each of the three producers.
    c. What is total value added of the three producers in this economy? How does it compare to the economy’s GDP? Does this example suggest another way of calculating GDP?
  1. Below are some data from the land of milk and honey.
Year Price of
Quantity of
Price of
Quantity of
2013 $1 100 $2 50
2014 $1 200 $2 100
2015 $2 200 $4 100

a. Compute nominal GDP, real GDP, and the GDP deflator for each year, using 2013 as the base year.
b. Compute the percentage change in nominal GDP, real GDP, and the GDP deflator in 2014 and 2015 from the preceding year. For each year, identify the variable that does not change. Explain why your answer makes sense.
c. Did economic well-being rise more in 2015 or 2015? Explain?

Course: ECO 102 Intro to Macroeconomics
School: Community College of Alleghany County

  • 01/04/2017
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