Question

Find nominal GDP for the US in 2002 (dollar figures are in billions). Show your work!

(all the numbers below are nominal)                                                                    (10 points)

consumption          $7304                          gross private investment         $1593

wages                    $5977                          government purchases            $1973

indirect taxes         $ 695                           net interest                              $ 684

net exports            $-424                           depreciation                            $1393

rent                        $ 142                           profit                                       $1545

      net foreign factor income earned in the US                                              $    10

Real GDP in 2002 was $9439.9 billion: What is the GDP deflator? (You have nominal GDP for 2002 from question one). Show work!                                                       (10 points)

Answer True or False for each of the following.                          (3 points each)

GDP per capita is GDP divided by the population growth rate.

Disposable personal income is what you have left over after paying basic living expenses.

Net Domestic Product is Gross Domestic Product minus depreciation.

Real GDP is always lower than nominal GDP.

The GDP deflator is a good cost of living index.

In the long run GDP tends to return to the vicinity of a long run growth path.

All government spending is in GDP.

If GDP is adjusted for purchasing power, the US usually improves its relative position.

The sale of primary and intermediate goods are excluded from GDP

Historically, a recession generally meant GDP was falling.

Each part is 10 points

A) nGDP is $5 trillion in Yr 1 and $5.4 trillion one year later. What is the GDP growth rate?

B) If rGDP in Yr 1 was also $5 trillion what can you say about Yr1?

C) If rGDP grew 5% between Yr. 1 and Yr. 2 what did GDP prices do?

(Hint: use part A. If you know GDP growth with both output and prices and now you now output by itself, what must prices have done?).

Determine whether GDP will be underestimated or overestimated in each of the following:    

(5 points each)

The quality of goods is declining.

Production is accompanied by significant spillover costs.

The government produces valuable goods and services at a low cost.

The cost of living is lower in the country than is typical in the world.

Answer 1

Question 1

Calculate the nominal GDP -

Nominal GDP = Consumption + Gross private investment + Government purchases + Net exports

Nominal GDP = $7,304 billion + $1,593 billion + $1,973 billion - $424 billion

Nominal GDP = $10,446 billion

The nominal GDP in 2002 was $10,446 billion.

Question 2

Real GDP in 2002 = $9,439.9 billion

Nominal GDP in 2002 = $10,446 billion

Calculate the GDP deflator -

GDP deflator = (Nominal GDP/Real GDP) * 100 = ($10,446 billion/$9,439.9 billion) * 100 = 110.66

The GDP deflator is 110.66