# Problem 1 Indicate how the component(s) of the GDP (consumption, i...

## Transcribed Text

Problem 1 Indicate how the component(s) of the GDP (consumption, investment, government expenditure, or net exports) in the United States would be affected by the following. Explain your answers. a) You buy Principles of Economics: 7th Edition by John B. Tnylor and Akila Weerapann from the Stanford bookstore. b) The Stanford bookstore buys more copies of Principles of Economics: 7th Edition in order to increase its inventory. c) You buy your roommate's iPad, which he had previously won in the Stanford bookstore's drawing. d) Your grandmother receives her Social Security check. e) Your grandmother buys the china she's always wanted from an online store based in Dresden, Germany. f) Your parents purchase a new ski cabin in Stemmont Springs, Colorado from a carpenter who built it this summer. 6) The carpenter bought a new truck so that he can use it to transport wood for building houses. h) The State of Colorado buys n new police interceptor to make sure that the corpenter doesn't drive his new truck too fast. Problem 2 A small nation idolizes the TV show American Idol. All they produce and consume are knrnoke machines and CDs. in the following amounts. Karaoke Machines CDs Year Quantity Price Quantity Price 2014 10 \$40 30 \$10 2015 12 \$60 50 \$12 a) Compute the percent change in the price level using the Consumer Price Index method, with a base year of 2014, assuming that that the basket of goods is the 2014 bundle b) Compute the percent change in the price level using the GDP deflator method, using 2014 ns base year. c) Are the inflation rates (the change in price levels) the same in n) and in b)? Explain why or why not. In particular, explain why one of the two methods might overstate inflation. 1 Problem 3 Suppose a gold miner finds n. gold nugget and sells the nugget to a mining company for \$500. The mining company melts down the gold, purifies it. and sells it to jewelry maker for \$1000. The jewelry makeer frashions the gold into a necklace which it sells to n. department store for \$1500. Finally, the department store sells the necklace to n customer for \$2000. a) Find how much GDP has incrensed using the spending appronch. b) Find how much GDP has increased using the production approach. c) Are your answers to part a) and part b) the same? Explain why or why not. Problem 4 Given the information in the following table for three consecutive years in the U.S. economy, calculate the missing data. Nominal GDP Real GDP GDP Deffator Inflation Ronl GDP per Capita Population Year (bulions of USD) (billons of (2013-100) (% change in (2013 USD) (millions) 2013 usD) GDP deflator) 2013 12,623 100 3.3 297.4 2014 12,959 3.2 300.3 2015 106.2 43,542 303.3

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Problem 1
Indicate how the component (s) of the GDP (consumption, investment, government expenditure, or net exports) in the United States would be affected by the following. Explain your answers.

a) You buy Principles of Economics: 7th Edition by John B. Taylor and Akila Weerapana from the Stanford bookstore.

This will affect the consumption(C ) of the economy as I buy the Principles of economics book which is for my own consumption...

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