Practice Problem

1. Suppose that Republic of Economists produces three goods: books, magazines and
papers. The following table provides information about the prices and output for these
three goods for the years 2013, 2014 and 2015.

Year Price Quantity Price Quantity Price Quantity

2013 100 10 50 100 10 200
2014 100 12 52 108 10 205
2015 110 12 54 115 10 212

a. Using the provided information, calculate the Nominal GDP for three years.
b. What is the percentage change in nominal GDP from 2013 to 2014?
c. What was the percentage change in nominal GDP from 2014 to 2015?
d. Using 2013 as the base year, calculate the real GDP for three years?
e. What was the percentage change in real GDP from 2013 to 2014?
f. What was the percentage change in real GDP from 2014 to 2015?
g. Calculate GDP deflator for three years?

Component of GDP
Effect on GDP (increase,
Scenario affected: C, I, G, X-M,
decrease, no change)
or NC- not counted

1. A farmer purchases a new tractor.

2. Businesses increase their current inventories.

3. You spend $7 to attend a movie.

4. Worried about consumer confidence, Ford purchases less

sheet metal for cars.

5. A retired man cashes his social security check from the

government.

6. A French company purchases a one-year membership to

PartyPeople.com, a U.S. based.

7. A person pays $450 a month to rent an apartment.

8. Worried about a recession, people begin saving more

money.
9. The U.S. government hires 10 Chinese language experts
from China to train U.S. workers.

10. Government closes school for the month of March.

2. Calculate GDP and Per-capita GDP

Country:Lemuria Country: Wonderland

Population:10,000 Population:15,000

Consumption(C):7million Consumption(C):5million

Investment(I):10million Investment(I):7million

Government(G):5million Government(G):8million

Exports:6million Exports:6 million

Imports: 2 Million Imports:1 Million

1.  Find the equilibrium Y and C? when a = 100, b = 1/2, I = 200, G = 200, T = 200.

2. The fundamental equations in an economy are given below, calculate The equilibrium
level of income and the net exports

a. Consumption Function           C         =          200 + 0.8Yd

b. Investment Function               I           =          300

c. Tax                                          T          =          120

d. Government Expenditure       G         =          200

e. Exports                                   X         =          100

f. Imports                                   M         =          0.05Y

1. Now calculate, the increase in the income if both government expenditure and tax
increased by an amount of 20 each.
2. The net exports, if exports increased by an amount of 60.