Chapter 07 - Measuring the Aggregate Economy
MEASURING THE AGGREGATE ECONOMY
PROBLEM SET
NAME: _______________________________________ DATE: ____ / ____ / ____
Give the best answer to each of the following questions.
1. Assuming the following were the only goods and services purchased in an economy in a year,
what is GDP?
Product
Apples
Shirts
Haircuts
Quantity
100
30
20
Price
$0.50
$10.00
$3.00
2. Consider the following supply chain for bread production in an economy.
A farmer sells wheat to a bakery for $10. The bakery makes 110 loaves from the wheat
and sells them to a wholesaler for $100. The wholesaler in turns sells the 110 loaves for
$105 to various grocery stores. The grocery stores sell the 110 loaves to consumers for $1
apiece.
a. Calculate value added at each stage of production.
b. What is GDP using the final sales approach? Show the calculation.
c. What is GDP using the value added approach? Show the calculation.
3. Answer the following about the components of national income.
a. What are the four expenditure components of the national accounts? Write them in
descending order of magnitude.
b. What are the four income components of the national accounts? Write them in
descending order of magnitude.
Chapter 07 - Measuring the Aggregate Economy
4. Distinguish between a flow concept and a stock concept. Provide an example of each.
5. From the information in the table below, calculate the following statistics.
Personal consumption
Investment
Net nonbusiness interest income
Government purchases
Profit
Employee compensation
Net exports
Rents
Depreciation
Indirect business taxes
Corporate retained earnings
Net foreign factor income
Interest
Social Security taxes
Transfer payments
Personal taxes
Statistical discrepancy
$1,344
456
270
480
406
1,520
24
2
278
156
249
5
98
150
300
214
0
a. Gross domestic product
b. Gross national product
c. Net domestic product
d. National income
6. Fill in the missing values in the table below. Assume that real output rose 4.5% from 2005 to
2006.
Year
2003
2004
2005
2006
2007
7.
Real Output
Nominal Output
5,161.92
5,291.61
______
______
5,813.18
2,789.50
______
3,255.00
______
3,933.20
GDP deflator
(2009 = 100)
______
59.12
62.73
65.21
______
Why, in the table above, are all of the GDP deflators less than 100?
Chapter 07 - Measuring the Aggregate Economy
Answers to the Problem Set
The following are the correct answers to the problem set that follows on the next two
pages, along with the learning objective associated with each question. The problem set
is designed to be photocopied directly from this book and distributed for student use.
1. (LO1)
GDP is $140.
2. (LO1)
a. The value added at each stage is $10 (farmer), $90 (bakery), $5 (wholesaler),
and $5 (retailer).
b. GDP would be $1 × 110 = $110.
c. GDP would be $10 + $90 + $5 + $5 = $110.
3. (LO1)
a. Personal consumption expenditures, government purchases, gross private
investment, and net exports.
b. Employee compensation, profits, interest, and rents.
4. (LO2)
A flow concept reflects an ongoing stream per period of time, like income. A
stock concept is something that has accumulated, like wealth.
5. (LO1, LO1, LO2)
a. $2,304; b. $2,309; c. $2,026; d. $2,031
6. (LO3)
The completed table should look like the one below.
Year
2003
2004
2005
2006
2007
Real Output
Nominal Output
5,161.92
5,291.61
5,188.90
5,422.33
5,813.18
2,789.50
3,128.40
3,255.00
3,535.90
3,933.20
GDP deflator
(2009 = 100)
54.04
59.12
62.73
65.21
67.66
7. (LO3)
Because prices in the early 2000s were on average lower than they were in the
base year, 2009.
Chapter 07 - Measuring the Aggregate Economy