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ECON 214 Problem Set 1 solutions complete answers
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Question 1
Which of the following will be counted in this year’s GDP?
A. Your therapist perfoms $300 of physical therapy on you but does not report it.
B. You purchase a historic home without the help of a real estate agent.
C. You detail your car so that it is spotless inside and out.
D. Toyota produces 10,000 new Camrys that remain unsold at the end of the year.
E. You purchase a new hard drive for your old laptop.
F. You bought a new Wii at GameStop last year and resold it on eBay this year.
G. Apple buys 1,000 motherboards for use in making new computers.
H. You purchase an Investing for Dummies book at Barnes & Noble.
Question 2
To which component of U.S. GDP expenditure does each of the following belong?
a. Swiss chocolates bought from a firm in Europe:
b. Prescription medications purchased by the Health Department of a country:
c. a teeth cleaning at the dentist:
d. a new home:
Question 3
A mechanic builds an engine and then sells it to a customized body shop for $7,000. The body shop inserts the engine into the car and resells it to a dealer for $20,000. The dealer then sells the finished vehicle for $42,000.
a. When the consumer drives off with the car, GDP increases by
b. What is the value added by the mechanic? (Assume that the value of the materials used to build it is zero.) $
c. What is the value added by the body shop? $
d. What is the value added by the dealer? $
e. The total value added is the amount that GDP increased.
Question 4
Please read the article below, and use the information in the article to answer the following questions.
Part 1
Which of the following are components of GDP?
Part 2
The article mentions the two most volatile components of GDP. It refers to one of these components as "inventories." Inventory is part of the investment component of GDP. Which of the following is the other volatile component of GDP mentioned in the article?
Question 5
Please read the article below, and use the information in the article to answer this question.
Part 1
Household consumption, which accounts for about % of the economy, grew at a 4.2% annualized rate during the second quarter of 2016.
Part 2
Which component of GDP would cause the largest increase in GDP if it increased by 5%?
Question 6
The table below shows nominal GDP and the price level in the years 2008 and 2016.
Real GDP in 2016, measured in billions of 2008 dollars, was . Give your answer to two decimals.
Question 7
You work for the Committee for Economic Evaluation in the small nation of Kinsdale. Your current job is to determine the country’s gross domestic product in the past year. Being a very small country, the people only produce three things, which are listed in the table below.
Based on the data in the table, what is the GDP for Kinsdale?
Question 8
Fill in the missing data in the following table. Give answers to two decimals.
Question 9
Consider an economy that only produces two goods: strawberries and cream. Use the table below to compute nominal GDP, real GDP, and the GDP deflator for each year. (Year 2014 is the base year.)
Question 10
Place the scenarios in the proper column to identify to what use GDP data is being put.
Items (3 items) (Drag and drop into the appropriate area below)
After positive increases in GDP, the United States reports negative GDP growth for the last quarter of the year.
In the 1800s Argentina was an economic force with persistently increasing real GDP. During the 1900s real GDP stagnated.
Qatar has a per capita GDP of approximately $100,000, making it one of the world's richest countries, despite its size.
Question 11
Which of the following would not be counted in the calculation of GDP?
paying for a local garage to rotate the tires on your motorcycle
buying a brand new car
buying a counterfeit designer purse from a guy in an alley
paying for a flight to Las Vegas
government spending on welfare payments
cleaning your own house
Question 12
A purchase of a car stereo made in the United States by a resident of Brazil would be considered an when counting GDP in Brazil. As a result, this purchase would be Brazilian GDP. A purchase of a bathing suit made in Brazil and sold in Canada would be considered an for Brazilian GDP, which would be Brazilian GDP.
Question 13
Based on the information in the table, calculate the total spending on durable goods, non-durable goods, and services.
Total spending on durable goods =
Total spending on non-durable goods =
Total spending on services =
Question 14
Part 1
If U.S. households decide to work fewer hours and take more leisure time, which component of GDP is most likely to decrease as a result?
Part 2
Based on the information in the article, does it appear that in early 2016 U.S. households in fact worked fewer hours and took more leisure time? What do the data suggest?
According to the article, grew at an annualized rate of percent, a compared to the recent past. This suggests that households worked hours and took leisure time.
Question 15
You are trying to explain to your friends the importance of using real GDP to measure economic health over time, but some of them still insist that nominal GDP is equally good. Use the data given below to show your friends the difference between real and nominal GDP.
Nominal GDP (millions of dollars) =
Price level (GDP deflator) =
What is real GDP given the nominal GDP and price level (GDP deflator)?
Real GDP (Round to two decimals) =
Question 16
You are working on a paper about the nation of New Winchesterton, a small island off the coast of Australia. New Winchesterton’s real GDP for 2010 through 2016 is provided in the table.
Which year-to-year real GDP growth was the fastest?
What was the real GDP growth rate that year? (Note: calculate your answer to one place beyond the decimal.)
Question 17
In which components of GDP would each of the following items be found?
Question 18
Which of the following items would be left out when calculating GDP?
Question 19
Use the graph here to answer the questions below. Notice that nominal GDP and real GDP are separated.
Part 1
What happens to the distance between the two trends as you move forward in time?
Part 2
What causes the gap between the two curves?
Question 20
Several European countries spend less time working and more time on leisure activities than the United States. How is this greater leisure time accounted for in gross domestic product measurements?