2010
AGEC 105
Capps
Answers to Chapter 2
1. b. 10%
2. Net Worth (Equity) = Assets – Liabilities
$16 million = $30 million – Liabilities
Liabilities = $14million
3. Marketing Bill
4. b.
5. d.
6. (a) farm input supply sector
(d) wholesale and retail sector
(b) farm sector
(e) final consumers
(c) processing and manufacturing sector
7. labor
8. 20
9. Real Income =
Real Income =
Nominal Income
Price Index
$45,000 for 2003
1.5 for 2003
= $30,000
10. Year Pounds of Cattle Slaughtered
2005
180,000
2006
250,000
2007
200,000
Output Index (Base Year = 2007)
180,000/200,000 = 0.9
250,000/200,000 = 1.25
1
11. a, b, c are true
12. 2 million
13. a. Net farm income = $500,000 + $100,000 + $50,000 - $300,000 = $350,000
b. Equity = $10,000 + $1,000,000 + $5,000,000 - $8,000,000 = $8,000,000
14. a. output index for 2005 =
70,000 (2005)
= 0.9333 (2006 = base year)
75,000 (2006)
Relative to 2006, output is lower by 6.67% in 2005.
2010
AGEC 105
b. Price index for 2007 =
Capps
$2.80 ( 2007)
= 0.9655 (2006 = base year)
$2.90 ( 2006)
Relative to 2006, prices are lower by 3.45% in 2003.
c. nominal income = price *output – production expenses
Year 2005 (70,000)($3.20) - $120,000 = $224,000 - $120,000 = $104,000
Year 2006 (75,000)($2.90) - $140,000 = $217,000 - $140,000 = $77,500
Year 2007 (80,000)($2.80) - $135,000 = $224,000 - $135,000 = $89,000
Year
2005
2006
2007
Nominal Income
$104,000
$77,500
$89,000
CPI
1.10
1.20
1.15
Real Income
$94,545
$64,583
$77,391
Best Year in terms of Real Income (and nominal income as well) is 2005.
15. Nominal Income in 1995: $24,000
CPI for 2007 = 1.5 with base year of 1995
Nominal Income needed in 2007 to match the spending power of the $24,000 in
1995 is ($24,000) x 1.5 = $36,000
16. Review output indices and price indices
17. Review the notions of nominal and real figures in economics.