Question

Determine whether each of the following examples would be included in Gross Domestic Product (GDP).

- When Joey had his birthday last week, his grandmother sent him a $100 bill that he could spend. Joey's birthday gift of $100

- Sandra is a waitress at Morton’s Steakhouse. She receives a cash tip of $50 that she pockets and does not report.

- Darius unclogs the drain in his sink using the plunger he owns.

- Pam buys a new 40-inch television at Walmart.

- Miguel won $100 in his office fantasy football league.

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Using the information below, and assuming that you want to maintain your purchasing power from 2011, what nominal wage should you demand in each of the given years?

Instructions: Round your answers to 2 decimal places.

Year	CPI	CPI (in hundredths )	Nominal Wage (dollars)
2011	224.94	2.249	$80,080
2012	229.59	2.296
2013	232.96	2.330
2014	236.74	2.367

b. Assume that your annual wage in 2014 was $85,000.

This represents  (Click to select)  

a) an increase in both nominal and real income

b) a nominal raise but a decline in the real wage

c) a nominal raise and a constant real wage

d) a decline in both nominal and real income  .

Answer 1

Joey's birthday gift of $100 is not included because only money bill is given. Sandra' cash tip is unreported so it is not reported. Darius does no transaction so this is also not included. Pam buys a new 40-inch television so this is a part of GDP. Miguel has won $100 and wins/windfall gains are not a part if GDP.

Purchasing power is maintained when real wage is demanded. You will want a nominal GDP in 2012, 2013, 2014 which is the real GDP taking base year = 2011. This can be done when nominal wage is increased at the rate of inflation.

Year	CPI	Inflation rate	Ajusted nominal wage
2011	224.94		80080
2012	229.59	2.067218	81735.43
2013	232.96	1.467834	82935.17
2014	236.74	1.622596	84280.87

This shows a) an increase in both nominal and real income