Principles of Macroeconomics
6th Edition
ISBN: 9780073518992
Author: Robert H. Frank, Ben Bernanke Professor, Kate Antonovics, Ori Heffetz
Publisher: McGraw-Hill Education
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Question
Chapter 4, Problem 1RQ
To determine
Use of market value while calculating
Expert Solution & Answer
Explanation of Solution
The gross domestic product is the summation of the market value of all the final goods and services produced within the economy in a financial year. There will be a wide variety of goods and services produced in the economy such as apples, oranges, grapes, automobiles, electronic items and so on. Thus, adding them together will be an impossible task. This issue is handled through the use of aggregating the market values of each goods. This helps to aggregate the value and calculate the GDP value of the economy. This is the reason why the economists use the market values to calculate the GDP.
The weight giving process for the high valued commodities than the low valued commodities is because of the fact of the consumer preferences. The price of each item is a measure of the value that it purchasers place on it. Higher valued goods place higher worth than the low priced commodity. This is the rationale behind giving higher weight for the higher priced commodities by the economists.
Economics Concept Introduction
Gross Domestic Product: The Gross Domestic Product (GDP) is the sum total of the money value of all the final goods and services produced within the economy in a given period of time, which is usually a financial year.
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Q2 MCQ
. Final goods or services used to compute GDP refer to:
the sum of all wages paid to laborers.
the factors of production used to produce output.
goods and services purchased by the ultimate users.
the value of outstanding shares of stock of manufacturing firms.
Company A successfully launches a hostile takeover of company B, in which company A purchases all the assets of company B.
Is the above transaction counted in GDP? Explain your answers.
Consider an economy that produces only four types of fruit: apples, oranges, pineapples, and bananas. In the base year (2012), the production and price data were as follows:
Fruit
Quantity
Price
Apples
3,000 bags
$2 per bag
Bananas
6,000 bunches
$3 per bunch
Pineapples
4,000
$1.5 per
Oranges
8,000 bags
$4 per bag
In the current year(2013), the production and price data are follows:
Fruit
Quantity
Price
Apples
4,000 bags
$3 per bag
Bananas
14,000 bunches
$2 per bunch
Pineapples
7,500
$2 per
Oranges
32,000 bags
$5 per bag
(a) Calculate the nominal GDP in the current year and the base year. What is the percentage increase since the base year?(b) Calculate the real GDP in the current year and the base year. By what percentage does real GDP increase from the base year to the current year?(c) Find the GDP deflator for the current year and the base year. By what percentage does the price level change from the base year to the current year?(d) Would you say…
Chapter 4 Solutions
Principles of Macroeconomics
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- The gross domestic product (GDP) of the United States is defined as the _________ (options: cost of producing, market value of, wholesale cost of) all _______________ (options: final and intermediate goods and services produced, final goods and services produced, final goods and services consumed) by _________________ (options: U.S. citizens, U.S.-owned companies, resources within the United States) in a given period of time, usually a year.arrow_forwardExplain why each of the following should be taken into account when GDP data are used to compare the “level of well-being" in different countries: Population levels The distribution of income The amount of production that takes place outside of markets. The length of the average workweek The level of environmental pollutionarrow_forwardSuppose the price level reflects the number of dollars needed to buy a basket of goods containing one can of soda, one bag of chips, and one comic book. In year one, the basket costs $9.00. In year one, $72.00 will buy(0.11, 0.13, 4.5, 8, 9) baskets, and in year two, $72.00 will buy (0.11, 0.13, 4.5, 8, 9) baskets. .arrow_forward
- You are discussing economic growth and the economic cycle with a group of colleagues in an effort to forecast the growth in an economy that is demonstrating an increase in investment, rising employment, and growing business confidence with slowly rising prices. Your discussion has encompassed the distinction between GDP and GNP and the importance of leading indicators for forecasting purposes. Based on this information, answer the following three questions. In national income accounting, what is the difference between gross domestic product (GDP) and gross national product (GNP)? GNP equals GDP plus domestic production/earnings by foreign companies/citizens ,minus foreign production/earnings by domestic companies/citizens GNP equals GDP plus foreign production/earnings by domestic companies/citizens, minus domestic production/earnings by foreign companies/citizens GNP equals GDP plus imports minus exports GNP equals GDP minus government spending minus exports plus imports.arrow_forwardWhich of the following is wrong? Select one: a. In the expenditures approach to GDP we subtract imports because they represent spending on production outside the borders of a country. b. Price indexes are computed by dividing the price of a specific collection or market basket of output in a particular period by the price of the same market basket in a base period and multiplying the result (the quotient) by 100. c. Exports are subtracted from imports in calculating GDP because exports are not available for domestic consumption. d. Gross private domestic investment exceeds depreciation in an economy that experiences expanding production capacity.arrow_forwardSuppose that in the nation state of Craiglandia there are 2 final goods produced in the economy – food and clothing. Suppose the economy produces 10 units of food and 5 units of clothing in 2000 (the base year), and 10 units of food and 10 units of clothing in 2015. Further suppose the price of food was $2.00 per unit in 2000, and $3.00 per unit in 2015; whereas the price of clothing was $2.00 in 2000 and $2.00 in year 2015. What was the nominal GDP for Craiglandia in 2015? What was the real GDP for Craiglandia in 2015? The GDP deflator for Craiglandia, for 2015, is _______; and it follows that Craiglandia experienced _______between 2000 and 2015.arrow_forward
- Following is a list of domestic output and national income figures for a given year. All figures are in billions. Calculate GDP by both the expenditure and income methods. The answers derived by each approach should be the same. Personal consumption expenditures $120 Capital consumption allowances (depreciation)20 Interest and miscellaneous investment income 10 Net income of farms and unincorporated business 17 Net exports+13 Profits of corporation and government enterprises before taxes 42 Wages, salaries, and supplementary labour income 113 Indirect business taxes (less subsidies)11 Government current purchases of goods and services 40 Net investment (net capital formation) 30 Taxes less subsidies on factors of production 10arrow_forwardDetermine whether each description refers to nominal gross domestic product (GDP) or real GDP. A measure of an economy's output using current prices. real GDP nominal GDP A measure of an economy's output using constant prices. real GDP nominal GDP A measure of output that is adjusted for inflation. nominal GDP real GDP A measure of output that is not adjusted for inflation. nominal GDP real GDParrow_forwardSuppose that annual output in year 1 in a 3-good economy is 3 quarts of ice cream, 1 bottle of shampoo, and 3 jars of peanut butter. In year 2, the output mix changes to 5 quarts of ice cream, 2 bottles of shampoo, and 2 jars of peanut butter. If the prices in both years are $4 per quart for ice cream, $3 per bottle of shampoo, and $2 per jar of peanut butter, what was the economy’s nominal GDP in year 1? Show the calculation.arrow_forward
- Suppose that annual output in year 1 in a 3-good economy is 3 quarts of ice cream, 1 bottle of shampoo, and 3 jars of peanut butter. In year 2, the output mix changes to 5 quarts of ice cream, 2 bottles of shampoo, and 2 jars of peanut butter. If the prices in both years are $4 per quart for ice cream, $3 per bottle of shampoo, and $2 per jar of peanut butter, what was the economy’s nominal GDP in year 1? Year 1 - the output combination is - 3 quarts of ice cream, 1 bottle of shampoo, and 3 jars of peanut butter. Year 2, the output combination changes to 5 quarts of ice cream, 2 bottles of shampoo, and 2 jars of peanut butter. The prices in both years are $4 per quart for ice cream, $3 per bottle of shampoo, and $2 per jar of peanut butter Therefore, GDP in year 1 was $21 [= (3 x $4) + (1 x $3) + (3 x $2)]. Recall that GDP is the core measure of an economy's health. Nominal GDP (also known as current–dollar economic statistics) is not adjusted to account for any price changes.…arrow_forwardConsider a country in which three goods (A, B, and C) are produced. The following table shows data for prices and quantities produced for two years. Quantities produced Unit prices Quantities produced Unit prices Q1 Q2 P1 P2 Good A 51 45 10 14 Good B 23 54 10 6 Good C 6 12 10 8 Using year 1 as the base year, what is the value of the GDP deflator between years 1 and 2? Hint: Remember that the GDP deflator is a way of measuring the aggregate change in prices from one period to another. a. -25% b. 8% c. 12.5% d. 0% Note:- Please avoid using ChatGPT and refrain from providing handwritten solutions; otherwise, I will definitely give a downvote. Also, be mindful of plagiarism. Answer completely and accurate answer. Rest assured, you will receive an upvote if the answer is accurate.arrow_forwardWhich of the following form the basis of GDP calculated using the income approach? Question 4 options: depreciation, profit, investment, and interest wages, rent, profit, and interest wages, depreciation, profit, and consumption Indirect taxes, consumption, rent, and wages factor prices, profit, rent, and net capitalarrow_forward
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