HANOI UNIVERSITY OF SCIENCE AND TECHNOLOGY

SCHOOL OF ECONOMICS AND MANAGEMENT

MACROECONOMICS
Chapter 2 - Problems and Applications

ĐỖ HOÀNG MINH
minh.dh203228@sis.hust.edu.vn

Business Administration
Major in Business Analytics

Lecturer: PhD. Trịnh Thu Thủy

Lecturer’s signature

Department: Economics
School: School of Economics and Management

Hanoi, 4/2021
 Problem 1.

Solution
 The growth rate of real GDP

 The inflation rate over 2020

I have not found yet

 The unemployment rate over March 2021

The line chart
illustrates the
umemployment rate in the
USA over March 2021
(the area in the red
rectangle). Easily to see,
the unemployment rate
edged down to 6.0
percent.
These improvements in
thelabor market reflect the
continued resumption of
economic activity that had
been curtailed due to the coronavirus (COVID-19) pandemic. Job growth was
widespread in March, led by gains in leisure and hospitality, public and private
education, and construction.

Problem 2.

Solution
* Note that the GDP equal the value of the final good (the bread in that case).
* Value added by each person is equal to the value of the good produced minus the
amount the person paid for the materials needed to make the good.
Therefore,
 The value added by the farmer: $1 - $0 = $1
 The value added by the miller: $3 - $1 = $2
 The value added by the baker: $6 - $3 = $3
 GDP is the total value added: $1 + $2 + $3 = $6

Problem 3.

Solution
When a woman marries her butler, then the butler’s work becomes the household
chores. So his services are no longer be counted in the GDP.
So the GDP falls by the amount of the butler’s salary. This happened because the
GDP measures total income.
If GDP truly measures the value of all goods and services then the marriage would
not affect GDP since the total amount of economic activity is unchanged. Actual GDP,
however, is an imperfect measure of economic activity because the value of some
goods and services if left out.
 As this example illustrates, GDP does not include the value of any output produced
in the house.

Problem 4.

Solution
a. U.S Air Force belong to U.S Government  government purchases
b. American Airlines is a private firm  investment
c. Air France is a foreigner firm  net export
d. Amelia Earhart is a person  consumtion
e. Builds an airplane to be sold in the future  investment

Problem 5.

Solution
I have not found it yet.
Problem 6.

Solution
a. GDP measures the value of the final goods or services produced: $1,000,000
b. NNP = GNP – depreciation. In that case, GNP = GDP because there is no
foreign transaction.  NNP = $1,000,000 - $125,000 = $825,000
c. Net national product is approximately equal to another measure called national
income  National income = NNP = $825,000
d. Compensation of employees = wage + fringe benefits = $600,000 + 0 =
$600,000
e. Proprietors’s income = owner’s income = $150,000
f. Corporate profits = The income of corporations after payments to their workers
and creditors = $1,000,000 - $600,000 - $125,000 = $275,000
g. Personal income = employees’ wage + dividend = $600,000 + $150,000 =
$750,000
h. Disposable personal income = personal income – taxes = $750,000 - $140,000 -
$60,000 = $550,000
Problem 7.

Solution
a. Nominal GDP2010 = ( P2010 2010 2010 2010
hot dogs∗Q hot dogs ) + ( Phamburgers∗Q hamburgers)

= $2 * 200 + $3 * 200 = $1000

Nominal GDP2015 = ( P2015 2015 2015 2015
hot dogs∗Q hot dogs ) + ( Phamburgers∗Q hamburgers)

= $4 * 250 + $4 * 500 = $3000

2010
∗Q 2015 2010 2015
Real GDP2015 = ( P hot dogs hot dogs ) + ( Phamburgers∗Q hamburgers)

= $2 * 250 + $3 * 500 = $2000

Nominal GDP of 2010
Implicit Price Deflator of 2010 = =1
Real GDP of 2010
Nominal GDP of 2015 $ 3000
Implicit Price Deflator of 2015 = = = 1.5
Real GDP of 2015 $ 2000
- The consumer price index (CPI) is called the fixed–weight price index because
it uses a fixed quantity of goods over time to weight prices.
( P2015 2010 2015 2010
hot dogs∗Q hot dogs ) + ( Phamburgers∗Q hamburgers )
 CPI2015 = 2010 = 1.6
( Phot dogs∗Q2010 2010 2010
hot dogs ) + ( Phamburgers∗Q hamburgers )

 The calculation shows that the price of the same goods in 2015 have increase by
60% compare to the price of these goods would have sold in 2010.
 The CPI2010 (the base year) = 1.0
b. ???
 Problem 8.

Solution
( P¿year 2∗Q¿year 1) + ( P¿year 2∗Q¿year 1) $ 2∗10+ $ 1∗0
a. Consumer price index (CPI) = = =
( P¿year 1∗Q¿year 1) + ( P¿year1∗Q¿year 1) $ 1∗10+ $ 2∗0
20
=2
10
According to the CPI, the price have doubled.
b. Nominal spending is the total value of output produced in each year. In year 1
and year 2, Abby buys 10 apples for $1 each, so her nominal spending remains
constant at $10.
Nominal spending2 = ( P¿year 1∗Q¿year 1 ) + ( P¿year 1∗Q¿year 1 )
= ($1 * 10) + ($2 * 0) = $10
c. Real spending is the total value of output produced in each year valued at the
price prevailing in year 1. In year 1, the base year, Abby’s real spending equals
her nominal spending of $10. In year 2, she consumes 10 green apples that are
each valued at their year 1 price of $2, so her real spending is $20.
Real spending2 = ( P¿year 1∗Q¿year 2 ) + ( P¿year 1∗Q¿year 2 )
= ($1 * 0) + ($2 * 10) = $20
d. The implicite price deflator is calculated by dividing Abby’s nominal spending
in year 2 by her real spending on that year.
Nominal spending year 2 10
Implicite price deflator = = = 0.5
Real spending year 2 20
Thus, the implicite price deflator suggests that price have fallen by half. The
reason for this is that the deflator estimates how much Abby values her apples using
price prevailing in year 1. From this perspective, green apples appear very valuable. In
year 2, when Abby consumes 10 green apples, it shows that her consumption has
increased because the deflator values green apples more highly than red apple.
The only way she could still be spending $10 on a higher consumption bundle is
if the price of the good she was comsuming fell.
e.

Problem 9.

a. The labor force includes: full time workers, part time worker, people who
looking for jobs and people who running their own business
 The labor force = 25 + 20 + 5 + 10 + 10 = 70 people.
Working-age group consists: the labor force + those not in the labor force
= the labor force + (people who given up + retired) = 70 + 20 = 90 people.
70
 Participation rate = = 77.8%
90
10
b. Unemployed people = 10  Unemployed rate = = 14.3%
70
c. The household survey estimates total employments by asking a sample of
households about their employment status.
The household survey would report 60 people employed. The establishment
survay estimates total employent by asking a sample of businesses to report how
many workers they are employing.
In this case, the establishment survey would report 55 people employed. The 5
people with 2 jobs would be counted twice, and the 10 people who run their
own business would not be counted.
 Problem 10.

As Senator Robert Kennedy

pointed out, GDP is an
imperfect measure of economic
performance or well-being.
In addition to the left-out
items that Kennedy cited, GDP
also ignores the imputed rent on
durable goods such as cars,
refrigerators and lawnmovers;
many services and products
produced and sold in illegal
activities, such as the drug
trande. These imperfection in
the measurement of GDP do not
necessarily reduce its
usefulness. As long as these measurement problems stay constant over time, then GDP
is useful in comparing economic activity from year to year. Moreover, a large GDP
allows us to afford better medical care for our children, newers book for education,…
Problem 11.

a. The real GDP falls because Disney World does not works anymore, they do not
produce any services while it is closed. This corresponds to a decrease in
economic well-being because the income of workers and shareholders of Disney
World falls, and people’s consumption of Disney World falls.
b. Real GDP rises because the original captital and labor in farm production now
produce more wheat. This corresponds to an increase in the economic well-
being of society, since people can now consume more wheat. (if people don’t
want wheat, then farmers and farmland can be shifted to producing other goods
that society values).
c. Real GDP falls because fewer workers on the jobs  firm produce less. This
corresponds to a decrease in economic well-being.
d. Real GDP falls because firms lay off workers  produce less  fewer goods
for people to buy.
e. In economics, real GDP falls because firms shift toward production methods
that produce fewer goods but emit less pollution (they may have to buy more
modern and eco systems, spend more to protect the enviroment.
But in real life, the GDP may rise, clean air is not traded in market, thus, does
not show up in measured GDP, but is nevertheless a good that people value.
f. Real GDP falls because father spend les time producing goods and services.
QUESTION FOR REVIEW