Principle of Economics: A Streamlined Approach by Frank

Author:Frank [Frank]
Language: eng
Format: epub, pdf
ISBN: 9781260597981
Google: fLQMzgEACAAJ
Publisher: McGraw-Hill
Published: 2021-02-18T20:32:34+00:00

PROBLEMS

1. George and John, stranded on an island, use clamshells for money. Last year George caught 300 fish and 5 wild boars. John grew 100 bunches of bananas. In the two-­person economy that George and John set up, fish sell for 3 clamshells each, boars sell for 10 clamshells each, and bananas go for 10 clamshells a bunch. George paid John a total of 30 clamshells for helping him dig bait for fishing, and he also purchased five of John’s mature banana trees for 30 clamshells each. What is the GDP of George and John’s island in terms of clamshells? (LO1)

2. How would each of the following transactions affect the GDP of the United States? (LO1)

a. The U.S. government pays $1 billion in salaries for government workers.

b. The U.S. government pays $1 billion to Social ­Security recipients.

c. The U.S. government pays a U.S. firm $1 billion for newly produced airplane parts.

d. The U.S. government pays $1 billion in interest to holders of U.S. government bonds.

e. The U.S. government pays $1 billion to Saudi ­Arabia for crude oil to add to U.S. official oil reserves.

3. MNLogs harvested logs (with no inputs from other companies) from its property in northern Minnesota. It sold these logs to MNLumber for $1,500, and MNLumber cut and planed the logs into lumber. MNLumber then sold the lumber for $4,000 to MNFurniture. MNFurniture used the lumber to produce 100 tables that it sold to customers for $70 each. (LO1)

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a. Complete the following table to calculate the value added by each firm.

b. Suppose that all of these transactions took place in 2019. By how much did GDP increase because of these transactions?

c. Suppose that MNLogs harvested the logs in October 2019 and sold them to MNLumber in December 2019. MNLumber then sold the finished lumber to MNFurniture in April 2020 and MNFurniture sold all 100 tables during the rest of 2020. By how much did GDP increase in 2019 and 2020 because of these transactions?

4. For each of the following transactions, state the effect both on U.S. GDP and on the four components of aggregate expenditure. (LO2)

a. Your mother-in-law buys a new car from a U.S. ­producer.

b. Your mother-in-law buys a new car imported from Sweden.

c. Your mother-in-law’s car rental business buys a new car from a U.S. producer.

d. Your mother-in-law’s car rental business buys a new car imported from Sweden.

e. The U.S. government buys a new, domestically produced car for the use of your mother-in-law, who has been appointed the ambassador to Sweden.

5. Calculate the four components of expenditure and GDP for the following economy using data from the following table. (LO2)

6. The nation of Potchatoonie produces hockey pucks, cases of root beer, and sandals. The following table lists prices and quantities of the three goods in the years 2017 and 2020. (LO3)

Assume that 2017 is the base year. Find nominal GDP and real GDP for both years.

7. The following is a report from a BLS survey taker: “There were 65 people in the houses I visited, 10 of them children under 16; 25 people had full-time jobs, and 5 had part-time jobs.

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