ECON 102- INTRODUCTION TO ECONOMICS II
DEPARTMENT OF ECONOMICS
BİLKENT UNIVERSITY
Fall 2015
Taskin
Homework Questions 1
The following questions are given so that you solve and study them before coming to the
recitation hours. You are suppose to offer your answers to all the questions when they
are being reviewed in those sessions. This will determine your participation grade.
TOPIC: GDP Computations, Real and Nominal GDP, Growth rate and Inflation rate
Question 1: Define Gross Domestics Product. Why is it necessary for us to come with a measure
that explains the output in an economy?
Question 2: What is intermediate good and how do the intermediate goods lead to double
counting in GDP computations? What do you do to avoid this problem in the GDP
computations?
Question 3: What are the three different methods of GDP calculations? Explain the expenditure
approach. Which part of goods and services market does this expenditure method focus in
computing GDP? If the government outlaws trade with the external sector, what will happen to
the GDP level in an economy?
Question 4: How do we compute Real GDP and growth rate of an economy? Using the following
Turkish real GDP data calculated with 1998 prices and the given formula compute the growth
rate of the Turkish data. Which ones are the highest and the lowest growth rates? Can you think
about the possible reasons for these growth rates?
R ö
æ GDP tR - GDP t-1
GrowthRate = ç
÷ *100
R
GDP t-1
è
ø
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
72519
76338
83485
90499
96738
101254
101921
97003
105885
115174
117625
122476
TCMB: EVDS system, in million 1998 TL.
Question 5: What is the income approach of GDP computation?
Question 6: Suppose that for the BILBIL country following information is provided. Compute the
GDP using both Expenditure and Income Approach. Are they the same?
Consumption Expenditures
Total wages
Investment Expenditures
Salaries
Interest Payments
239400
125200
50250
90250
22750
Total Profits
Disposable Income
Undistributed profits
Taxes
Government Spending
Distributed profits
Exports
Rental income
Imports
46900
291032
24300
46218
75800
22600
48700
76450
52600
Question 7: Define what is value added. Compute value added at every stage of the production in
the following example:
Turkish consumers have a special taste for simit consumption. Let’s say that Simit is produced
in 4 stages.
 Producer A raises WHEAT by using land (for which he does not pay anything) and labor,
sells its output to
 Producer B who produces FLOUR by hiring Labor and using milling equipment.
 Producer C buys the flour and mixes with free water to produce DOUGH by employing a
cook and using a dough mixer.
 The last producer in the chain, Producer SIMITEVI purchases dough and uses an oven
and produces simit which is sold to costumers in Simitevi.
 If all prices reported are scaled according to production of 10 simits, we see that wheat
is sold at 1.5 TL; flour is sold at 3.25 TL; dough is sold at 4.75TL. The final price of 10
simits is 7.5 TL.
a. Compute the value added of 10 simits at each production stage.
b. Compute the total value added.
c. If you employ total value added to compute the GDP for this production or compute the
GDP with expenditure approach what is the GDP contribution of this amount of simit
production.
Question 8: What type of price index have you seen in class? Write the formula for each one?
What is the difference between them? How do you use price indexes to compute inflation (or
deflation) rates?
Questions 9: If the following data for Consumer Price Index for Turkey is provided, compute the
inflation rate for each sub period. (What is the base year for the following CPI?)
2003
100
2004
108
2005
117
2006
128
__________ 2010
178
2011
189
2012
206
TCMB: EVDS system, where 2003 =100 is the base year.
a. Compute the rate of inflation for each pair of year using the following formula:
2013
222
æP -P ö
InflationRate = ç t t-1 ÷ *100
è Pt-1 ø
You will see that the inflation rate has declined in Turkey between the early 2000s and
current period. Do you know the reasons for this? What is the name of the policy that aims at
decreasing the inflation rate?
Question 10:
What is the impact of the following on the Turkish GDP?
1. The purchase of milk by a consumer, for 300 TL.
2. The purchase of milk by a Sutas (a yogurt producer) for 5000TL.
3. Onur purchases a Toyota produced in Izmit, for 55 000TL.
4. Bilkent University builds three new dorms in the main campus, costing 800 000TL.
5. Ayse purchases a used second hand Wolkswagen for 30 000TL.
6. Government builds a new highway for 9 000 000TL.
Topic: Factors of Production Markets: Labor market (for the next home work session)
Question 11: From sources on the web find the information on the following variables and fill in
the table below:
COUNTRY
POPULATION
LABOR FORCE PARTICIPATION
RATE
LABOR FORCE
Germany
Turkey
South Korea
a) What is the definition of labor force participation rate?
b) What happens to labor force if this rate increases? How will this affect the total output
produced?