Exercise:

1. Suppose there are two goods x and y in the economy and are traded as indicated in the
table. The base year is 2008.

x y

Year Quantity price Quantity price

2008 6 5 5 6

2009 7 4 6 5

2010 3 11 4 9

a. Calculate the nominal GDP for each year

Nominal GDP is simply equal to the sum of the current year price * current year quantity of all
the goods.

 2008: (6*5) + (5*6) = 30 + 30 = 60

 2009: (7*4) + (6*5) = 28 + 30 = 58
 2010: (3*11) + (4*9) = 33 + 36 = 69

b. Calculate the real GDP for each year.

Real GDP is equal to the sum of the base year price * current year quantity of all the goods.

 2008: (6*5) + (5*6) = 30 + 30 = 60

 2009: (6*4) + (5*5) = 24 + 25 = 49
 2010: (6*11) + (5*9) = 66 + 45 = 111

c. In which year is there economic growth? Why?

The GDP deflator is equal to (Nominal GDP / Real GDP) *100.

 2008: 100. Because 2008 is the base year we know the deflator has to equal 100 even
without doing any calculations.
 2009: (58 / 49) *100 = 118.36
  2010: (69 / 111) *100 = 62.1, It is 2010 because GDP deflator decreased means no
increase in the price the product.

d. What is the real GDP per capita of 2008, if the total population is 2?

GDP per capita of 2008 = 60/2 = 30

2. Assume the above national income accounting data in billions of dollars:

A. Calculate gross national product.

Y=C+I+G+X+Z

Where:

 C – Consumption Expenditure
 I – Investment
 G – Government Expenditure
 X – Net Exports (Value of imports minus value of exports)
 Z – Net Income (Net income inflow from abroad minus net income outflow to foreign
countries)

Then Y = 750 + 80 + 100 + (20-10) + (160 - 15) = 1085

B. Calculate net national product.
Net National Product (NNP) = Gross National Product (GNP) – Depreciation

NNP = 1085 – 250 = 835

C. Calculate national income.

National Income = Total Rent + Total Wages + Total Interest + Total Profit.
Total Profit = Corporate profit tax payments, undistributed profits and valuation adjustments +
personal taxes = 120 + 200 = 320

National Income = 50 + 350 + 500 + 320 = 1220

D. Calculate personal income.

PI = NI - Contributions to Social Security - corporate profits taxes --undistributed corporate profits +

personal interest income
 = 1220 – 200 + 160 = 1180
E. Calculate personal disposable income.
DI = Personal Income – Personal taxes
= 1180 – 120 = 1060
Calculate personal saving = DI - consumption expenditures = 1060 – 750 = 310

3. Based on the following data compute

A. GDP as expenditure Approach?
GDP = C + I + G + (X−M)
where:
C = Consumer spending on goods and services
I = Investor spending on business capital goods
G = Government spending on public goods and services
X=exports
M=imports
GDP = 304 + 124+ 156 + 18 = $602
B. GDP as Income approach?

GDP =Total National Income + Sales Taxes + Depreciation+ Net Foreign Factor Income

Where;

Total National Income = all wages + rent + interest + profits

= 67 + 75 + 150 + 200 = $492

Sales Taxes = Consumer taxes imposed by the government on the sales of goods and services = $74

Depreciation = Cost allocated to a tangible asset over its useful life = $36

Net Foreign Factor Income – $175

GDP = 74 + 36+ 492 + 175 = $777