ECON 214 HW10 National Income Assignment solutions complete answers

ECON 214 HW10 National Income Assignment solutions complete answers

 

1. The economy's income and expenditure

The following diagram presents a circular-flow model of a simple economy. The outer set of arrows (shown in green) shows the flow of dollars, and the inner set of arrows (shown in red) shows the corresponding flow of inputs and outputs.

  

Based on this model, households earn income when purchase in markets for factors of production.

 

Suppose Rosa earns $600 per week working as an installation technician for Stephon’s Satellite Service. She uses $7 to install reflective stickers on her bike at Riley’s Off-Road Repair. Riley’s Off-Road Repair pays Nick $375 per week to fix bicycles. Nick uses $200 to purchase satellite tv from Stephon’s Satellite Service.

Identify whether each of the following events in this scenario occurs in the market for factors of production or the market for goods and services.

Event
Market for Factors of Production
Market for Goods and Services
Rosa earns $600 per week working for Stephon’s Satellite Service.
 
 
 
Nick spends $200 to purchase satellite tv from Stephon’s Satellite Service.
 
 
 
Nick earns $375 per week working for Riley’s Off-Road Repair.
 
 
 
 

Which of the elements of this scenario represent a flow from a household to a firm? This could be a flow of dollars, inputs, or outputs. Check all that apply.

 Rosa's labor

 The $200 Nick spends to purchase satellite tv from Stephon’s Satellite Service

 The $375 per week Nick earns working for Riley’s Off-Road Repair

 

True or False: For the economy as a whole, expenditures must equal income.

 

Based on this model, households earn income when    purchase    in markets for factors of production.

Suppose Poornima earns $850 per week working as an air traffic controller for PlaneRed Airlines. She uses $9 to buy shampoo at Christian’s Corner Store. Christian’s Corner Store pays Manuel $425 per week to stock shelves. Manuel uses $150 to purchase a flight from PlaneRed Airlines.

Identify whether each of the following events in this scenario occurs in the market for factors of production or the market for goods and services.

Event
Market for Factors of Production
Market for Goods and Services
Poornima earns $850 per week working for PlaneRed Airlines.
 
 
 
Manuel spends $150 to purchase a flight from PlaneRed Airlines.
 
 
 
Poornima spends $9 to buy shampoo.
 
 
 
Which of the elements of this scenario represent a flow from a firm to a household? This could be a flow of dollars, inputs, or outputs. Check all that apply.

 The shampoo Poornima receives

 The $150 Manuel spends to purchase a flight from PlaneRed Airlines

 The $425 per week Manuel earns working for Christian’s Corner Store

True or False: Gross domestic product (GDP) measures total expenditures on final goods and services during a given period of time.

 True

 False

 

Based on this model, firms earn revenue when  purchase in markets for goods and services.

Suppose Becky earns $700 per week working as a roofer for Chloe’s Construction. She uses $8 to have dessert at Guilherme’s Garden. Guilherme’s Garden pays Alex $400 per week to curate a wine list. Alex uses $100 to purchase roofing supplies from Chloe’s Construction.

Identify whether each of the following events in this scenario occurs in the market for factors of production or the market for goods and services.

Event
Market for Factors of Production
Market for Goods and Services
Alex earns $400 per week working for Guilherme’s Garden.
 
 
 
Alex spends $100 to purchase roofing supplies from Chloe’s Construction.
 
 
 
Becky spends $8 to have dessert.
 
 
 
Which of the elements of this scenario represent a flow from a household to a firm? This could be a flow of dollars, inputs, or outputs. Check all that apply.

 The $100 Alex spends to purchase roofing supplies from Chloe’s Construction

 The dessert Becky receives

 The $400 per week Alex earns working for Guilherme’s Garden

True or False: The actual economy is more complicated than the simple one illustrated in this circular-flow diagram.

 

Based on this model, households earn income when    purchase    in markets for factors of production.

Suppose Susan earns $600 per week working as a registered nurse for the Medical Clinic. She uses $8 to have a pint at Breanna’s Brewing Company. Breanna’s Brewing Company pays Raphael $350 per week to serve as head brewer. Raphael uses $125 to purchase a sleep test from the Medical Clinic.

Identify whether each of the following events in this scenario occurs in the market for factors of production or the market for goods and services.

Event
Market for Factors of Production
Market for Goods and Services
Susan spends $8 to have a pint.
 
 
 
Raphael spends $125 to purchase a sleep test from the Medical Clinic.
 
 
 
Raphael earns $350 per week working for Breanna’s Brewing Company.
 
 
 
Which of the elements of this scenario represent a flow from a firm to a household? This could be a flow of dollars, inputs, or outputs. Check all that apply.

 The beer Susan receives

 Susan's labor

 The $125 Raphael spends to purchase a sleep test from the Medical Clinic

True or False: For the economy as a whole, expenditures must equal income.

 True

 False

 

2. Activities included (and not included) in the calculation of GDP
The gross domestic product (GDP) of the United States is defined as the all in a given period of time.

 

Based on this definition, indicate which of the following transactions will be included in (that is, directly increase) the GDP of the United States in 2023.

Scenario
2023 GDP
Included
Excluded
Generic Motor Company, a U.S. automobile company, produces a pickup truck at a manufacturing facility in Lordstown on January 9, 2023. It sells the car at a dealership in Denver on February 2, 2023.
 
 
 
Lane Motors, a Japanese automobile company, produces a self-driving car at a plant in Arizona on December 12, 2023. A family buys the self-driving car on December 24.
 
 
 
Parkway Motors, a U.S. automobile company, produces a convertible at a plant in Mexico on March 17, 2023. Parkway Motors imports the convertible into the United States on May 21, 2023.
 
 
 
An accountant starts a client's 2023 tax return on April 14, 2024, finishing it just before midnight on April 15, 2024.
 
 
 
Graincorp, a U.S. agricultural company, produces corn syrup at a plant in Iowa on September 19, 2023. It sells the corn syrup to Crunchy's for use in the production of cereal that will be made in the United States in 2023. (Note: Focus exclusively on whether production of the corn syrup increases GDP directly, and ignore the effect of production of the cereal on GDP.)
 
 
 
 

The gross domestic product (GDP) of the United States is defined as the    all        in a given period of time.

Based on this definition, indicate which of the following transactions will be included in (that is, directly increase) the GDP of the United States in 2023.

Scenario
2023 GDP
Included
Excluded
Billy Bonka’s, a German chocolate company, produces a chocolate bar at a plant in Pennsylvania on December 12, 2023. A high schooler buys the chocolate bar on December 24.
 
 
 
Using wood from a red maple tree on your Michigan property you make a birdhouse in 2023. A similar birdhouse sells for $55 in a craft store.
 
 
 
Graincorp, a U.S. agricultural company, produces corn syrup at a plant in Iowa on September 19, 2023. It sells the corn syrup to Crunchy's for use in the production of cereal that will be made in the United States in 2023. (Note: Focus exclusively on whether production of the corn syrup increases GDP directly, and ignore the effect of production of the cereal on GDP.)
 
 
 
Generic Motor Company, a U.S. automobile company, produces a pickup truck at a manufacturing facility in Lordstown on January 9, 2023. It sells the car at a dealership in Denver on February 2, 2023.
 
 
 
Parkway Motors, a U.S. automobile company, produces a convertible at a plant in Mexico on March 17, 2023. Parkway Motors imports the convertible into the United States on May 21, 2023.
 
 
 
 

The gross domestic product (GDP) of the United States is defined as the    all        in a given period of time.

Based on this definition, indicate which of the following transactions will be included in (that is, directly increase) the GDP of the United States in 2020.

Scenario
2020 GDP
Included
Excluded
Thickburger, a U.S. fast-food company, produces a double cheeseburger at one of its many locations throughout the midwest on January 10, 2020. It sells the double cheeseburger to a customer that same day.
 
 
 
An accountant starts a client's 2020 tax return on April 14, 2021, finishing it just before midnight on April 15, 2021.
 
 
 
Sleepytown, a Finnish furniture company, produces a bed frame at a plant in Virginia on December 1, 2020. It sells the bed frame to a college student on December 28.
 
 
 
Rotato, a U.S. tire company, produces a set of tires at a plant in Michigan on September 30, 2020. It sells the set of tires to Speedmaster for use in the production of a two-door coupe that will be made in the United States in 2020. (Note: Focus exclusively on whether production of the set of tires increases GDP directly, and ignore the effect of production of the two-door coupe on GDP.)
 
 
 
Gamewear, a U.S. electronics company, produces a VR headset at a plant in South Korea on March 18, 2020. Gamewear imports the VR headset into the United States on May 7, 2020.
 
 
 
 

The gross domestic product (GDP) of the United States is defined as the    all        in a given period of time.

Based on this definition, indicate which of the following transactions will be included in (that is, directly increase) the GDP of the United States in 2021.

Scenario
2021 GDP
Included
Excluded
Lane Motors, a Japanese automobile company, produces a self-driving car at a plant in Arizona on December 5, 2021. A family buys the self-driving car on December 30.
 
 
 
Larry’s Lattes, a U.S. coffee company, produces a latte at its location in Los Angeles on January 18, 2021. It sells the latte to a customer immediately.
 
 
 
Cleancutters, a U.S. lumber company, produces wood at a plant in Oregon on September 23, 2021. It sells the wood to Buildit and Partners, a developer, for use in the production of a new house that will be built in the United States in 2021. (Note: Focus exclusively on whether production of the wood increases GDP directly, and ignore the effect of production of the new house on GDP.)
 
 
 
Athena’s, a U.S. shoe company, produces a pair of basketball shoes at a plant in Honduras on March 4, 2021. Athena’s imports the pair of basketball shoes into the United States on May 12, 2021.
 
 
 
The Wilson family buys an antique serving platter at an auction in upstate New York on March 4, 2021.
 
 
 
 

3. Categories of expenditures
Clancy and Eileen Chen live in Conshohocken, PA. Eileen's father, Hubert, lives in Sweden.

For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply.

Transaction
C
I
G
X
M
The Federal Aviation Administration expands the runways at Philadelphia International Airport, which is just a few miles from Clancy and Eileen's house.
 
 
 
 
 
 
Eileen gets a new video camera made in the United States.
 
 
 
 
 
 
Eileen's father in Sweden orders a bottle of Vermont maple syrup from the producer's website.
 
 
 
 
 
 
Clancy's employer upgrades all of its computer systems using U.S.-made parts.
 
 
 
 
 
 
Eileen buys a new BMW, which was assembled in Germany.
 
 
 
 
 
 
 

Carlos and Deborah Azinian live in Conshohocken, PA. Their son, Felix, owns his own plumbing business.

For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply.

Transaction
C
I
G
X
M
Carlos buys a sweater made in Guatemala.
 
 
 
 
 
 
Deborah gets a new video camera made in the United States.
 
 
 
 
 
 
Carlos's employer assigns him to provide consulting services to an Australian firm that's opening a manufacturing facility in China.
 
 
 
 
 
 
The Pennsylvania Department of Transportation, a state administration, fixes potholes along PA highway 23, which feeds into the center of Conshohocken.
 
 
 
 
 
 
Felix buys a new set of tools to use in his plumbing business.
 
 
 
 
 
 
 

Dmitri and Frances Cuttner live in Conshohocken, PA. Their son, Jake, is an artist living in New York City.

For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply.

Transaction
C
I
G
X
M
Jake paints a landscape and sells it to an art collector in Canada.
 
 
 
 
 
 
Dmitri buys a bottle of Italian wine.
 
 
 
 
 
 
The Federal Aviation Administration expands the runways at Philadelphia International Airport, which is just a few miles from Dmitri and Frances's house.
 
 
 
 
 
 
Frances gets a new refrigerator made in the United States.
 
 
 
 
 
 
The Cuttners build an addition on their house.
 
 
 
 
 
 
 

Kevin and Maria Singh live in Conshohocken, PA. Maria's father, Rajiv, lives in Sweden.

For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply.

Transaction
C
I
G
X
M
The borough of Conshohocken sponsors a parade for St. Patrick’s Day.
 
 
 
 
 
 
Maria buys a new BMW, which was assembled in Germany.
 
 
 
 
 
 
Maria gets a haircut.
 
 
 
 
 
 
Maria's father in Sweden orders a bottle of Vermont maple syrup from the producer's website.
 
 
 
 
 
 
Kevin's employer upgrades all of its computer systems using U.S.-made parts.
 
 
 
 
 
 
 

4. Measuring GDP
The following table shows data on consumption, investments, exports, imports, and government expenditures for the United States in 2020, as published by the Bureau of Economic Analysis. All figures are in billions of dollars.

Fill in the missing cells in the table to calculate GDP using the expenditure approach.

 
Data
(Billions of dollars)
Consumption (C)
14,047.6
Investment (I)
3,637.8
Exports (X)
2,123.4
Imports (M)
2,774.6
Net Exports of Goods and Services
 
Government Purchases (G)
3,859.5
Gross Domestic Product (GDP)
 
 
The following table shows data on consumption, investments, exports, imports, and government expenditures for the United States in 2018, as published by the Bureau of Economic Analysis. All figures are in billions of dollars.

Fill in the missing cells in the table to calculate GDP using the expenditure approach.

 
Data
(Billions of dollars)
Consumption (C)
13,948.5
Investment (I)
3,650.1
Exports (X)
2,531.3
Imports (M)
3,156.7
Net Exports of Goods and Services
 
Government Purchases (G)
3,520.8
Gross Domestic Product (GDP)
 
 

The following table shows data on consumption, investments, exports, imports, and government expenditures for the United States in 2020, as published by the Bureau of Economic Analysis. All figures are in billions of dollars.

Fill in the missing cells in the table to calculate GDP using the expenditure approach.

 
Data
(Billions of dollars)
Consumption (C)
14,047.6
Investment (I)
3,637.8
Exports (X)
2,123.4
Imports (M)
2,774.6
Net Exports of Goods and Services
 
Government Purchases (G)
3,859.5
Gross Domestic Product (GDP)
 
 

The following table shows data on consumption, investments, exports, imports, and government expenditures for the United States in 2017, as published by the Bureau of Economic Analysis. All figures are in billions of dollars.

Fill in the missing cells in the table to calculate GDP using the expenditure approach.

 
Data
(Billions of dollars)
Consumption (C)
13,321.4
Investment (I)
3,368.0
Exports (X)
2,350.2
Imports (M)
2,928.6
Net Exports of Goods and Services
 
Government Purchases (G)
3,374.4
Gross Domestic Product (GDP)
 
 
5. Real versus nominal GDP
Consider a simple economy that produces two goods: stickers and enamel pins. The following table shows the prices and quantities of the goods over a three-year period.

Year
Stickers
Enamel pins
Price
Quantity
Price
Quantity
(Dollars per sticker)
(Number of stickers)
(Dollars per enamel pin)
(Number of enamel pins)
2020
2
255
2
195
2021
3
165
3
190
2022
2
130
3
195
Use the information from the preceding table to fill in the following table.

Year
Nominal GDP
Real GDP
GDP Deflator
(Dollars)
(Base year 2020, dollars)
2020
900
900
100
2021
1,065
710
150
2022
845
650
130
 

From 2021 to 2022, nominal GDP, and real GDP.

 

The inflation rate in 2022 was.

 

Why is real GDP a more accurate measure of an economy's production than nominal GDP?

 Real GDP does not include the value of intermediate goods and services, but nominal GDP does.

 Real GDP measures the value of the goods and services an economy produces, but nominal GDP measures the value of the goods and services an economy consumes.

 Real GDP is not influenced by price changes, but nominal GDP is.

 

Consider a simple economy that produces two goods: stickers and donuts. The following table shows the prices and quantities of the goods over a three-year period.

Year
Stickers
Donuts
Price
Quantity
Price
Quantity
(Dollars per sticker)
(Number of stickers)
(Dollars per donut)
(Number of donuts)
2019
3
260
2
160
2020
4
120
2
220
2021
3
155
2
140
Use the information from the preceding table to fill in the following table.

Year
Nominal GDP
Real GDP
GDP Deflator
(Dollars)
(Base year 2019, dollars)
2019
 
 
 
2020
 
 
 
2021
 
 
 
 

From 2020 to 2021, nominal GDP, and real GDP.

 

The inflation rate in 2021 was   .

 

Why is real GDP a more accurate measure of an economy's production than nominal GDP?

 Real GDP is not influenced by price changes, but nominal GDP is.

 Real GDP does not include the value of intermediate goods and services, but nominal GDP does.

 Real GDP includes the value of exports, but nominal GDP does not.

 

Consider a simple economy that produces two goods: plastic cups and enamel pins. The following table shows the prices and quantities of the goods over a three-year period.

Year
Plastic cups
Enamel pins
Price
Quantity
Price
Quantity
(Dollars per plastic cup)
(Number of plastic cups)
(Dollars per enamel pin)
(Number of enamel pins)
2017
2
275
1
170
2018
4
155
2
200
2019
2
120
2
160
Use the information from the preceding table to fill in the following table.

Year
Nominal GDP
Real GDP
GDP Deflator
(Dollars)
(Base year 2017, dollars)
2017
 
 
 
2018
 
 
 
2019
 
 
 
From 2018 to 2019, nominal GDP    , and real GDP    .

The inflation rate in 2019 was    .

Why is real GDP a more accurate measure of an economy's production than nominal GDP?

 Real GDP measures the value of the goods and services an economy produces, but nominal GDP measures the value of the goods and services an economy consumes.

 Nominal GDP is adjusted for the effects of inflation or deflation, whereas real GDP is not.

 Real GDP is not influenced by price changes, but nominal GDP is.

 

Consider a simple economy that produces two goods: beers and paper plates. The following table shows the prices and quantities of the goods over a three-year period.

Year
Beers
Paper plates
Price
Quantity
Price
Quantity
(Dollars per beer)
(Number of beers)
(Dollars per paper plate)
(Number of paper plates)
2016
2
245
1
175
2017
4
150
2
210
2018
2
135
2
180
Use the information from the preceding table to fill in the following table.

Year
Nominal GDP
Real GDP
GDP Deflator
(Dollars)
(Base year 2016, dollars)
2016
 
 
 
2017
 
 
 
2018
 
 
 
From 2017 to 2018, nominal GDP    , and real GDP    .

The inflation rate in 2018 was    .

Why is real GDP a more accurate measure of an economy's production than nominal GDP?

 Real GDP is not influenced by price changes, but nominal GDP is.

 Real GDP does not include the value of intermediate goods and services, but nominal GDP does.

 Real GDP measures the value of the goods and services an economy produces, but nominal GDP measures the value of the goods and services an economy consumes.

 

6. Limitations of GDP
Although GDP is a reasonably good measure of a nation's output, it does not necessarily include all transactions and production for that nation.

Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States? Check all that apply.

 Funds spent by city governments to renovate their buildings

 The value of babysitting services, when the babysitter is paid in cash and the transaction isn't reported to the government

 The quality of goods available to consumers

 The costs of overfishing and other overly intensive uses of resources

 

When a U.S. company purchases and imports electronic parts from China to use to produce smartphones within the United States, this purchase increases the component of GDP while also  net exports by the same amount. Therefore, the purchase of electronic parts from China causes in US GDP.

 

Although GDP is a reasonably good measure of a nation's output, it does not necessarily include all transactions and production for that nation.

Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States? Check all that apply.

 The leisure time enjoyed by households

 The value of babysitting services, when the babysitter is paid in cash and the transaction isn't reported to the government

 Funds spent by city governments to renovate their buildings

 The costs of air and water pollution

When a U.S. company purchases and imports electronic parts from China to use to produce smartphones within the United States, this purchase increases the      component of GDP while also      net exports by the same amount. Therefore, the purchase of electronic parts from China causes     in US GDP.

 

Although GDP is a reasonably good measure of a nation's output, it does not necessarily include all transactions and production for that nation.

Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States? Check all that apply.

 The loss of enjoyment people incur when scenic land is converted to commercial use

 The value produced when you wash your own car at home

 Federal government paychecks to soldiers

 The variety of goods available to consumers

 

When a U.S. company purchases and imports wood from Brazil to use to build new houses within the United States, this purchase increases the  component of GDP while also     net exports by the same amount. Therefore, the purchase of wood from Brazil causes in US GDP.

 

Although GDP is a reasonably good measure of a nation's output, it does not necessarily include all transactions and production for that nation.

Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States? Check all that apply.

 The import and sale of illegal drugs from South America

 The costs of overfishing and other overly intensive uses of resources

 The quality of goods available to consumers

 Expenditures on federal highways

When a U.S. company purchases and imports automotive parts from Canada to use to build cars within the United States, this purchase increases the  component of GDP while also     net exports by the same amount. Therefore, the purchase of automotive parts from Canada causes in US GDP.