Problem Set 2 - What was the value of GDP
Question # 00707270
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Updated on: 07/20/2018 05:51 AM Due on: 07/20/2018
Problem Set 2
1. The information requested in this question can be found on the website
of the Bureau of Economic Analysis (www.bea.gov, Hint: look for NIPA
Historical Tables).
(a) What was the value of GDP (not Real GDP) in the 4th quarter of
2016? For the same quarter, what was the value for the 5 main
expenditure components of GDP (recall that from an expenditure
perspective GDP can be expressed as GDP = C + I + G + X
M)?
Which Table did you use for your answers (Table number)
(b) What was the growth rate of Real GDP in the 3rd quarter of 2016
and what was it in the 4th quarter of 2016? Which Table did you
use for your answers (Table number)
(c) What was the percentage contribution of each expenditure component
to real GDP growth in the 4th quarter of 2016? Which Table
did you use for your answers (Table number)
2. Consider an economy with only two businesses, called OrangeInc and JuiceInc.
OrangeInc owns and operates orange groves. It sells some of its
oranges directly to the public, making $10,000. It sells the rest of its oranges
to JuiceInc, making $25,000. JuiceInc uses the oranges it acquires to
produce and sell orange juice to the public. The total revenue of JuiceInc
is $40,000. What is the value added by each business? Compute GDP
using the Product Approach and using the Expenditure Approach.
3. Consider an economy consisting of only two companies:Oil Inc. and Electricity
Inc. Electricity Inc. buys $400 worth of oil from Oil Inc and uses
it to produce electricity. It is owned by US nationals, its plant is based in
the US and its workers are all US nationals. It receives $1000 in revenue
from the sale of electricity to the public (domestic) and has to pay $500
in wages. Oil Inc is owned by US nationals and it operates two di§erent
oil extraction plants, one at home and the other in Saudi Arabia. The domestic
plant pays $400 in wages to domestic workers and produces $2000
worth of oil. Out of this production, $1600 is sold directly to the public
domestically and $400 is sold to Electricity Inc. The foreign plant employs
only foreigners. Its total wage bill is $300. It produces $1300 worth of oil
out of which $500 is sent back to the US and sold to the public and the
remaining $800 is sold in Saudi Arabia
(a) Compute US GDP using the income, expenditure and product approaches.
Clearly show and explain all steps used for each approach.
In particular, for each item that you add up, specify under which
speciÖc category it falls
(b) Redo question (a) assuming that all the workers in this economy are
foreigners. Point out what changes in each approach compared to
question (a). How is the value of GDP a§ected
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Rating:
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Solution: Problem Set 2 - What was the value of GDP