Essay on Macroeconomics

2967 Words Apr 16th, 2011 12 Pages
Chapter 2: Date of Macroeconomics 1. What components of GDP (if any) would each of the following transactions affect? What will happen to GDP? Explain. a. A family buys a new refrigerator.
Answer: Consumption increases because a refrigerator is a good purchased by a household. GDP increases.

b. Aunt Jane buys a new house. Answer: Investment increases because a house is an investment good. GDP increases. c. Ford sells a Mustang from its inventory.
Answer: Consumption increases because a car is a good purchased by a household, but investment decreases because the car in Ford’s inventory had been counted as an investment good until it was sold. GDP is unaffected. d. You buy a pizza.
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Answer: 4% real GDP per person = real GDP/population %Δ real GDP per person = %Δ real GDP - %Δ population = 6-2

11. If GDP (measured in billions of current dollars) is $5,465 and the sum of consumption, investment, and government purchases is $5,496, while exports equal $673, what are imports equal to?
Answer: $704 GDP = Consumption + Investment + Government + Exports -Imports $5,465 = $5,496 + $673 - IM Imports = $704 12. A woman marries her butler. Before they were married, she paid him $20,000 per year. He continues to wait on her as before (but as a husband rather than as a wage earner). She earns $1,000,000 per year both before and after her marriage. How can this marriage affect total GDP?
Answer: It decreased GDP by $20,000.
Household production is not included in GDP.

13. Below are some data from the land of milk and honey. Year Price of Milk Quantity of Milk (quarts) Prices of Honey Quantity of Honey (quarts)
2005 $1 100 $2 50
2006 $1 200 $2 100
2007 $2 200 $4 100
a. Compute nominal
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