GDP Problem Sets and International Economic Indicators

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1. The accounting identity for GDP is as follows: C+I+G+X-M=GDP Thus, we have the following calculation: 1000 + 200 + 250+ 100 = 1550 2. The effect on the GDP of increasing domestic energy production depends on what assumptions go into this. The easiest assumption is that the increase in domestic production will result in an equivalent reduction in imports. This would result in no net change to the GDP. However, with domestic production all of the value that goes into that production would stay in the country, whereas with imports some of the value of that production goes outside the country. For example, the cost of barrel of foreign oil includes factors like shipping costs and producer markups that inflate the cost of the imports. In all likelihood, domestic energy sources, if viable, would be most cost effective. Under that assumption, M would decrease faster than I would increase. Thus, there would be a net gain to the GDP from switching to domestic energy production. Inflation 1. 111/106 = 4.7% 2. 234/217 = 7.8% Unemployment 1. 2500 / 30,000 = 8.33% 2. 2500 / (30,000 500) = 8.47% Yield Curve 1.b.Maturity risk premiums. The increase in the yield for the bonds corresponds with the longer maturities. Therefore, in all likelihood the premium reflects increased risk for bonds with a longer time frame. 2. d. The default risk premium is added to all bonds, including US government bonds, at least in theory. For example, when the US received a downgrade last year,
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