Macroeconomics Test Notes

ECONTWO: EXERCISE 1
WINFRED M. VILLAMIL 3rd TERM, 2013-2014
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I. Indicate to which the following items of GDP belong by writing C for personal consumption expenditure, I for gross capital formation, G for government spending, and EX for exports. Write O if it is excluded from current GDP.

O 1. Payment by the government of social security benefits to a retired public school teacher
G 2. Construction by government of a new road.
I 3. Net additions to the stock of unsold shoes.
I 4. Newly constructed residential homes.
I 5. Purchase of new machines by a private firm.
C 6. Payments you made to David’s Salon for your hair and make up.
O 7. Purchases of stocks and bonds by an investor.
O 8. Production and sale of marijuana
I 9. Construction of a new factory by a private enterprise.
O 10. Purchases of imported chocolates by consumers.
O 11. Vegetables produced in the backyard and consumed by the household.
O 12. Sales of second hand cars.
EX13. Sales by Intel Philippines of semiconductors to the US.
O 14. Sales of a San Miguel Brewery in Hong Kong to the Chinese Mainland.
O 15. Sales by Motolite of car batteries to Nissan Philippines

II.. Indicate to which the following items belong by writing GDP for Gross Domestic Product, GNP for Gross National Product. “Both” for an item that is included in both GDP and GNP.

BOTH 1. Salary of your teacher in Economics.
BOTH 2. Christmas bonus paid to government employees of the Philippines.
BOTH 3. Medical insurance premium paid to a Filipino insurance company in Makati.
GDP 4. Consultancy fee of a US scientist working in the Philippines.
GNP 5. Salaries of overseas Filipinos in Hong Kong.
GNP 6. Profits of San Miguel in Hong Kong.
GDP 7. Profits of US shareholder of Intel Philippines.
GNP 8. Rental income of a Filipino who owns an apartment in the US.
BOTH 9. Rental income of a Filipino owned condominium in Vito Cruz.
GDP 10. Salary of the Japanese president of Honda Philippines.

III. Fill in the blanks.
1. A steel company sells some steel to a bicycle company for $150. The bicycle company uses the steel to produce a bicycle, which it sells for $250. Taken together, these two transactions contribute how much to GDP? Ans. $250
2. Suppose there are only two firms in an economy: Rolling Rawhide produces rawhide and sells it to Chewy Chomp, Inc., which uses the rawhide to produce and sell dog chews. With each $2 of rawhide that it buys from Rolling Rawhide, Chewy Chomp, Inc. produces a dog chew and sells it for $5. Neither firm had any inventory at the beginning of 2008. During that year, Rolling Rawhide produced enough rawhide for 1000 dog chews. Chewy Chomp, Inc. bought 75% of that rawhide for $1500 and promised to buy the remaining 25% for $500 in 2009. Chewy Chomp, Inc. produced 750 dog chews during 2008 and sold each one during that year for $5. What was the economy's GDP for 2008? Ans. $4250
IV. The table below contains data for the country of Crete for the year 2010.
Total income $5731
Household purchases of durable goods $1108
Household purchases of nondurable goods $702
Household purchases of non-education services $203
Household purchases of education services $302
Household purchases of new housing $816
Purchases of capital equipment $333
Inventory changes $75
Purchases of new structures $267
Depreciation $401
Local government spending on goods and services $236
State government spending on goods and services $419
Federal government spending on goods and services $1182
Transfer payments $707
Foreign purchases of domestically produced goods $217
Domestic purchases of foreign goods $129
1. What was Crete’s GDP in 2010? Ans. $5731
2. What was Crete’s consumption in 2010? Ans. $2315
3. What was Crete’s investment in 2010? Ans. $1491
4. What were Crete’s government purchases in 2010? Ans. $1837
5. What were Crete’s net exports in 2010? Ans. $88

V. The table below contains data for the country of Batterland, which produces only waffles and pancakes. The base year is 2009.

Year Price of
Waffles Quantity of Waffles Price of Pancakes Quantity of
Pancakes
2008 $2.00 100 $1.00 100
2009 $2.00 120 $2.00 150
2010 $2.00 150 $3.00 200
2011 $4.00 180 $3.00 220
1. In 2008, this country's nominal GDP was $300
2. In 2009, this country's nominal GDP was $540
3. In 2008, this country's real GDP was $400
4. In 2009, this country's real GDP was $540
5. In 2010, this country's real GDP was $700
6. In 2011, this country's real GDP was $800
7. 2008, this country's GDP deflator was $75
8. In 2009, this country's GDP deflator was 100
9. In 2010, this country's GDP deflator was 128.6
10. In 2011, this country's GDP deflator was 172.5
11. From 2010 to 2011, this country's output grew 14.3%.
12. This country's inflation rate from 2008 to 2009 was 33.3%.
13. This country's inflation rate from 2010 to 2011 was 34.1%.

VI. The table below pertains to Napandsnack, an economy in which the typical consumer’s basket consists of 2 pillows and 15 hotdogs.

Year Price of a
Pillow Price of a
Hotdog
2009 $40 $3
2010 $45 $4
2011 $50 $3

1. If the base year is 2009, then the consumer price index was 100 in 2009,
2. 120 in 2010, and
3. 116 in 2011.
4. If the base year is 2009, then the economy’s inflation rate in 2010 is 20 percent.
5. The CPI was 96 in 1982, and the CPI was 208 in 2010. How much money would you have needed in 2010 in order to buy what you could have bought with $500 in 1982? Ans. $1,083.33
6. The consumer price index was 225 in 2006 and 234 in 2007. The nominal interest rate during this period was 6.5 percent. What was the real interest rate during this period? Ans. 2.5 percent
7. If Philippine real GDP grows by 7% while its population grows by 2%, then real per capita income will grow by 5%
8. and its per capita income using the rule of 70 will double in 14 years.
9. In one day Madison Laundry washed 4,000 pounds of laundry with 5 workers who each worked 8 hours. What was its productivity? Ans. 100 pounds of laundry per hour
10. Stock in Creole Cuisine Restaurants is selling at $25 per share. Creole Cuisine had earnings of $5 a share and a dividend yield of 5 percent. The dividend is $1.25
11. while the P/E ratio is 5.

VII. Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500 consumption equals 7,500 and government purchases equal 2,000.
1. Private saving = 1000
2. Public saving = 500
3. National saving = 1500

Assume the following information for an imaginary, closed economy. GDP = $120,000; consumption = $70,000; private saving = $9,000; national saving = $12,000.
4. For this economy, investment amounts to $12,000.
5. The government is running a budget (deficit, surplus) surplus
6. equal to $3000.
7. For this economy, government purchases amount to $38,000.
8. For this economy, taxes amount to $41,000. VIII. Use the following table to fill in the blanks. Numbers are in millions.

Total Population of working age: 139.7
Number of Unemployed: 5.7
Number of employed: 92.3

a. The labor force is 98 million.
b. The number of persons not in the labor force is 41.7 million.
c. The labor force participation rate is 70 percent.
d. The unemployment rate is 5.8 percent.

11. The figure below shows a diagram of the labor market before and after a minimum wage is imposed.

1. If the market for workers is in equilibrium at $5.00 per hour as shown in this diagram, the number of workers unemployed is zero.
2. A minimum wage of $8.00 per hour will increase unemployment by how many workers? 600 workers.