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Union County College Introduction to Economics     Eco 201: HW Solutions for Unit 2 Chapter 25   1

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Union County College

Introduction to Economics

 

 

Eco 201: HW Solutions for Unit 2

Chapter 25

 

1.   Which of the following goods are usually intermediate goods and which are usually final goods:  running shoes; cotton fibers; watches; textbooks; coal; sunscreen lotion; lumber? LO1

 

2.  Provide three examples of each:  consumer durable goods, consumer nondurable goods, and services.

 

3. Which of the following are included or excluded in this year’s GDP? Explain your answer in each case.

 (a)Income received by the bondholder for the services derived by the corporation for the loan of money.

(b)    A transfer payment from taxpayers for which no service is rendered (in this year).

(c)    Nonmarket production. 

(d)    Payment for a final service.  You cannot pass on a tooth extraction!

(e)  A private transfer payment; simply a transfer of income from one private individual to another for which no transaction in the market occurs.

(f)  The production of the car had already been counted at the time of the initial sale.

(g)  It is a new good produced for final consumption.

(h)    The effect of the decline will be counted, but the change in the workweek itself is not the production of a final good or service or a payment for work done.

(i)     The increase in inventories could only occur as a result of increased production.

(j)   Merely the transfer of ownership of existing financial assets.

PROBLEM 1. If in some country personal consumption expenditures in a specific year are $50 billion, purchases of stocks and bonds are $30 billion, net exports are -$10 billion, government purchases are $20 billion, sales of second-hand items are $8 billion, and gross investment is $25 billion, what is the country’s GDP for the year?

PROBLEM 7. The following table shows nominal GDP and an appropriate price index for a group of selected years. Compute real GDP. Indicate in each calculation whether you are inflating or deflating the nominal GDP data. LO3

 

Chapter 26

Question 1. What are the four supply factors of economic growth? What is the demand factor? What is the efficiency factor? Illustrate these factors in terms of the production possibilities curve. LO3

 

Question 2. What is growth accounting? To what extent have increases in U.S. real GDP resulted from more labor inputs? From greater labor productivity? Rearrange the following contributors to the growth of productivity in order of their quantitative importance: economies of scale, quantity of capital, improved resource allocation, education and training, technological advance. LO4

           

Question 3. True or false? If false, explain why. LO4

a. Technological advance, which to date has played a relatively small role in U.S. economic growth, is destined to play a more important role in the future.

b. Many public capital goods are complementary to private capital goods.

c. Immigration has slowed economic growth in the United States.

 

 

Problem 1.

Suppose an economy’s real GDP is $30,000 in year 1 and $31,200 in year 2. What is the growth rate of its real GDP? Assume that population is 100 in year 1 and 102 in year 2. What is the growth rate of real GDP per capita? LO1   

 

Chapter 27

Question 1:

What are the four phases of the business cycle? How long do business cycles last? Why does the business cycle affect output and employment in capital goods industries and consumer durable goods industries more severely than in industries producing consumer nondurables? LO1

Question 2:

Explain how an increase in your nominal income and a decrease in your real income might occur simultaneously. Who loses from inflation? Who gains? LO3

Problem 1:

Assume the following data for a country: total population, 500; population under 16 years of age or institutionalized, 120; not in labor force, 150; unemployed, 23; part-time workers looking for full-time jobs, 10. What is the size of the labor force? What is the official unemployment rate? LO2

 

 

Problem 2:

Suppose that the natural rate of unemployment in a particular year is 5 percent and the actual rate of unemployment is 9 percent. Use Okun's law to determine the size of the GDP gap in percentage-point terms. If the potential GDP is $500 billion in that year, how much output is being forgone because of cyclical unemployment? LO2

 

 

Problem 3:

If the CPI was 110 last year and is 121 this year, what is this year's rate of inflation? In contrast, suppose that the CPI was 110 last year and is 108 this year. What is this year's rate of inflation? What term do economists use to describe this second outcome? LO3