ECON 2102 Study Guide - American Motors, Income Approach, American Steel

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14 Jul 2014

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There are only three firms in an economy. Data on the three firms production costs and values of sales are provided below. Determine gdp by the expenditure approach, the income approach and the value added approach. Take the problem # 6 on page 45 of the text book. Note that the third column gives data for the year 2010. Calculate nominal gdp for 2000 and 2010, real gdp (using year 2000 as the base year) and gdp deflator for 2010. Consider the price and the quantity data for two goods, computer and food, provided below. Suppose these are the only goods produced in a hypothetical economy during 2007: calculate nominal gdp, real gdp (using 2007 as the base year) and chain-weighted real gdp for each year from 2007 to 2012. 598 (review the worked-out problem in the folder "additional resources" prior to working on problem.

Related Questions

Calculate the missing data.

Calculate missing data from the table.

Income/Expenditure Flows	Amount (in billions)
Consumption expenditure	$7
Government expenditure	$5
Depreciation	$3
Net taxes	$2
Investment	$4
Net exports	$1
Expenditures
Income
GDP

Calculate the following.

Using the data from a partial set of national income and expenditure data, address the following:

Calculate gross domestic product (GDP) using the expenditure approach.

Determine net domestic product, gross national product (GNP), and statistical discrepancy.

Item	Amount in 2010 (in billions)
Government expenditure (G) =	$8
Consumption expenditure (C) =	$20
Investment (I) =	$5
Net exports (NX) =	$1.5
GDP (expenditure approach)=
Total wages =	$21
Net operating surplus =	$11
Net domestic product =
Indirect taxes minus subsidies =	$3.5
Capital consumption =	$2
GDP (income approach)=
Statistical discrepancy =
Net factor income from abroad =	$5.5
GNP =

Consider the tables.

Given production and price data below, address the following:

Calculate an economy's nominal GDP and real GDP.

In 2000:

Item	Quantity (millions)	Price ($/unit)	Expenditure (millions of $)
Socks	15	5	75
SIM cards	20	2	40
Defense Budget	9	5	45

Real/Nominal GDP = 160

In 2003:

Item	Quantity (millions)	Price ($/unit)	Expenditure (millions of $)
Socks	15	5	75
SIM cards	20	5	100
Defense Budget	20	10	200

Nominal GDP =

2003 Quantities valued at 2000 prices:

Item	Quantity (millions)	Price ($/unit)	Expenditure (millions of $)
Socks
SIM cards
Defense Budget

Real GDP =

Answer the following questions.

How do you measure GDP?

How do you measure real and nominal GDP?

How do you determine Consumer Price Index and what are its limitations?

Which of the following expenditures will be included in GDP which will be excluded from the calculation? Explain your answers.

Spare tires bought by Across America, a car rental company

Textbooks bought by college students

Cabinets purchased by a furniture store

A new car purchased by an NFL player

A cruise ship bought by Carnival

Consider a simple economy consisting of only four firms. Firm A, a mining enterprise, extracts iron ore. Firm B, a steelmaker, produces steel sheets. Firm C, a carmaker, makes automobiles while Firm D produces automobile tires.

In 2018, Firm A extracts 50,000 tons of ore, valued at $100 per ton, using previously existing machinery. Firm B produces 10,000 tons of steel sheets, valued at $3,000 per ton, having bought and used all of the ore produced by Firm A. Firm C manufactured 5,000 vehicles and sold them all to households for $25,000 each, having purchased 8,000 tons of steel sheets from Firm B. In addition, Firm C imported 5,000 engines from a foreign subsidiary each valued at $5,000, and purchased 20,000 tires from Firm D for $100 each. Firm D produced 100,000 tires valued at $100 each, but only sold 60,000 tires during 2018. Firm D purchased 2,000 tons of steel sheets from Firm B since all of their tires are steel belted radials.

Calculate GDP in 2018 for this economy using the production (value-added) approach.

Also, calculate GDP in 2018 using the expenditure approach.

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:

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.

The Home Station pays Al's Lawn Care $850 to plant the lawn.

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.

Stage of Production	Sale Value	Cost of Intermediate Goods	Resource Cost-Income
Green Center Nursery	$200	?	?
Al's Lawn Care	$850	?	?
The Home Station	$1,200	?	?

The contribution to GDP that you found using the expenditure approach corresponds to the sum of the _____ at each stage of production.

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ECON 2102 Study Guide - American Motors, Income Approach, American Steel

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