1.

a. Components of GDP: Consumption. Because the refrigerator is the durable

good
b. Components of GDP: Investment. Because buying a new house is one type
of household spending category
c. Components of GDP: Investment and Consumption. Because a Mustang is
an inventory so the investment is fall and the one who buys the Mustang can
make the consumption increase. So it does not contribute any change in
GDP.
d. Components of GDP: Consumption. Because Pizza is a non-durable good
and it makes consumption increases.
e. Components of GDP: Government purchases. Because repaving Highway
101 is the public work
f. Components of GDP: Consumption and Net exports. Consumption increases
because the bottle is a good purchased by a household, but net export
decrease because a bottle of French wine was imported
g. Components of GDP: Investment. Because new structures equipment were
built then investment increases.
3.
If GDP included goods that are resold, it would make GDP a less informative
measure of economic well-being because it double-counts goods that were sold
more than once. GDP just indicates the market value, that has been created inside a
specific territory during a specific time frame. Reselling never creates new value
for the economy hence excluded from the GDP calculation.
4.
a)
2010: Nominal GDP= 200, real GDP= 200
2011: Nominal GDP= 400, real GDP= 400
2012: Nominal GDP= 800, real GDP= 400
GDP deflator:
2011: ($200/$200)x100= 100
2011: ($400/$400)x100= 100
2011: ($800/$400)x100= 200
b)
_ Percentage change in nominal GDP in 2011 = [($400 – $200)/$200] × 100 =
100%.
Percentage change in nominal GDP in 2012 = [($800 – $400)/$400] × 100 = 100%
_ Percentage change in real GDP in 2011 = [($400 – $200)/$200] × 100 = 100%.
Percentage change in real GDP in 2012 = [($400 – $400)/$400] × 100 = 0%.
_ Percentage change in the GDP deflator in 2011 = [(100 – 100)/100] × 100 = 0%.
Percentage change in the GDP deflator in 2012 = [(200 – 100)/100] × 100 = 100%.
_ Prices did not change from 2010 to 2011. Thus the percentage change in the
GDP deflator is zero. Quantity did not change from 2011 to 2012. This means that
the percentage change in real GDP is zero.
c) Economic well-being rose more in 2011 than in 2012, since real GDP rose in
2011 but not in 2012. In 2011, real GDP rose but prices did not. In 2012, real GDP
did not rise but prices did.
6.
a. Growth rate of nominal GDP = 100 x [(14,256/9,353)1/10-1]= 4,30%
b. Growth rate of GDP deflator = 100 x [(109.8/86.8)-1] = 26,5%
c. Real GDP = nominal GDP / GDP deflator * 100
1999: Real GDP = 9,353 / 86,8 *100 = $ 10,77 billions
2009: Real GDP = 14,256/109.8 *100= $ 12,98 billions
d. The growth rate of real GDP= (12,98-10,77/10,77)* 100= 20.52%
e. The growth rate of real GDP is
f. The growth rate of nominal GDP is
8.
a. GDP= $180 because bread is the final good to the customers
b. Value added
+ By farmer: $100
+ By miller: $150- $100= $50
+ By baker: $180-$150=$30
c. Total value added = $100 + $50 + $30 = $180.
The total value added by the three individuals is the same as the economy’s GDP.
The value added method is another method that can be used to determine the value
of GDP of a country. All things equal, the value added method should equal the
GDP of the country.
11.
a. GDP= $400
b. NNP= GDP- Depreciation = $400-$50= $350
c. National income= NNP-indirect tax= $350-30=$320
d. Personal Income= National income – Retained earnings – Indirect business taxes
= $320 – $100 = $220.
e. Disposable personal income = personal income – personal income tax = $220 –
$70 = $150.