1. Would it be possible for an increase in taxation to decrease the gross domestic product measured in the U.S.? Why or why not?
2. Adam's Ribs in downtown Chicago buys $10,000worth of beef ribs, $25,000 worth of pork ribs, and $8,000 worth of napkins each month. Are these purchases included in the calculation of gross domestic product?
3. There are two ways to measure gross domestic product. What are they and how are they different?
4. Provide the formula for the expenditure approach to GDP accounting and include an example of each category of spending.
1. Would it be possible for an increase in taxation to decrease the gross domestic product measured in the U.S.? Why or why not?
2. Adam's Ribs in downtown Chicago buys $10,000worth of beef ribs, $25,000 worth of pork ribs, and $8,000 worth of napkins each month. Are these purchases included in the calculation of gross domestic product?
3. There are two ways to measure gross domestic product. What are they and how are they different?
4. Provide the formula for the expenditure approach to GDP accounting and include an example of each category of spending.
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There are five questions. Each question is worth one point. Consider the following list of data for a country for a given year. Amounts are in billions of dollars. Your answers should be based on the U.S. national-accounts. In your answers, you may refer to the items by the abbreviations shown.
| Item | Amount |
| Consumption (C) | 65 |
| Depreciation (DEPR) | 20 |
| Government Consumption and Gross Investment (G) | 18 |
| Gross Private Domestic Investment (I) | 30 |
| Household Production (HP) | 20 |
| Household Purchases of Stocks and Bonds (ST) | 50 |
| Interest (INT) | 2 |
| Net Exports of Goods and Services (NX) | -3 |
| Net Income of Foreigners (NIF) | -1 |
| Profits (PROF) | 7 |
| Proprietorsâ Income (PRIN) | 4 |
| Rent (RENT) | 4 |
| Sales Taxes (STAX) | 4 |
| Wages (W) | 70 |
1. Compute national income. Show your work.
2. Compute GDP via the âresource-cost incomeâ approach. Show your work.
3. Compute GDP via the âexpendituresâ approach. Show your work.
4. Two items in the list are negative. How can these items be negative and yet be components of GDP? Could these items be positive and still be components of GDP? Explain carefully and thoroughly.
5. Two items in the list are not part of the answers to 1-3. Which are the items and why do they not enter the answers? Explain carefully and thoroughly.
The expenditure and resource cost-income approaches to calculating GDP arrive at the same final number, but they calculate that number in different ways. To illustrate, consider the possible effects of the following transactions on GDP:
| 1. | Ralph pays The Home Station $1,200 to plant a new lawn in his backyard. He's attracted by The Home Station's guarantee that he'll be happy with the new lawn, or he'll get his money back. | ||||||||||||||||
| 2. | The Home Station pays Al's Lawn Care $850 to plant the lawn. | ||||||||||||||||
| 3. | Al's Lawn Care buys grass seed worth $200 from Green Center Nursery. Compute contributions to GDP, using the expenditure approach. Assume that Green Center Nursery receives the grass seed at no charge and that other costs are zero. Hint: Add the amount of money spent by buyers of final goods and services. Which of the following would be included in the expenditure method of calculating GDP? Check all that apply. -The Home Station spends $850. -Ralph spends $1,200. -Al's Lawn Care spends $200. The total contribution to GDP, measured by the expenditure method, is $______ Now use the following table to compute contributions to GDP, employing the resource cost-income approach. In particular, indicate the costs of intermediate goods and the value-added at each stage of production.
The contribution to GDP that you found using the expenditure approach corresponds to the sum of the _____ at each stage of production. |
