1. A large number of economic statistics are released regularly. These include the following:
Gross Domestic Product—the market value of all final goods and services produced in a year.

The Unemployment Rate—the percentage of the civilian labor force who do not have a job.

Corporate Profits—the income of corporations after payments to workers and creditors.  It gives an indication of the general financial health of the corporate sector.

The Consumer Price Index (CPI)—a measure of the average price that consumers pay for the goods they buy; changes in the CPI are a measure of inflation.

The Trade Balance—the difference between the value of goods exported abroad and the value of goods imported from abroad.

In looking at the economic statistics, most people want to see a low and stable inflation rate of about 2–3 percent, a low and stable unemployment rate of about 5 percent, and GDP growth in the 3–4-percent range. This indicates the economy is “healthy” and performing at its long-run average level. Looking at the economic statistics released in early 2009, the unemployment rate was rising and had reached 8 percent, the inflation rate was near zero, and GDP growth in the last quarter of 2008 was –6.3 percent. This of course indicated the economy was still in the midst of a major recession.

2. Value added by each person is the value of the good produced minus the amount the person paid for the materials needed to make the good. Therefore, the value added by the farmer is $1.00 ($1 – 0 = $1). The value added by the miller is $2: she sells the flour to the baker for $3 but paid $1 for the flour. The value added by the baker is $3: she sells the bread to the engineer for $6 but paid the miller $3 for the flour. GDP is the total value added, or $1 + $2 + $3 = $6. Note that GDP equals the value of the final good (the bread).

3.  This question is potentially ambiguous as where is the computer manufactured.  Or are we not even thinking about the computer, but rather the service provided by the sales force.  I will assume this is a US good (or service) and that we are not importing the computer.

  a.  Government Purchase,  b.  Investment  c.  Export  d.  Consumption  e.  Investment

4. To save me time, this is the answer provided to me.  Not only are the numbers different from yours, but many were unable to locate the data on the BEA site and selects to use something like FRED.  That is OK as the main point was not to merely collect, but to better understand what we are exploring in class.

Data on parts (a) to (g) can be downloaded from the Bureau of Economic Analysis (www.bea.doc.gov—follow the links to Gross Dometic Product). Most of the data (not necessarily the earliest year) can also be found in the Economic Report of the President. By dividing each component (a) to (g) by nominal GDP and multiplying by 100, we obtain the following percentages:

                                                   1950     1980     2005

a. Personal consumption expenditures 65.5%   63.0%   70.0%

b. Gross private domestic investment 18.4%   17.2%    16.9%

c. Government consumption purchases 15.9%  20.3%    18.9%

d. Net exports                                  0.2%   –0.5%    –5.8%

e. National defense purchases              6.7%    6.0%       4.7%

f. State and local purchases                7.0%    11.6%     11.9%

g. Imports                                      3.9%     10.5%     16.2%

(Note: These data were downloaded April 17, 2006 from the BEA web site.) Among other things, we observe the following trends in the economy over the period 1950–2005:

(a) Personal consumption expenditures have been around two-thirds of GDP, although the share increased markedly between 1980 and 2005.

(b) The share of GDP going to gross private domestic investment fell slightly from 1950 to 2005.

(c) The share going to government consumption purchases rose sharply from 1950 to 1980 but has receded somewhat since then.

(d) Net exports, which were positive in 1950, were substantially negative in 2005.

(e) The share going to national defense purchases fell from 1980 to 2005.

(f) The share going to state and local purchases rose from 1950 to 1980.

(g) Imports have grown rapidly relative to GDP.

 

5.  a.  The total expenditures from the customers

b.  NNP = GDP - Depreciation

c.  National Income = NNP - Statistical Discrepancy (They do not talk about this so I assume it is zero)

d. What the workers (not the owner) receive as income

e.  Proprietors'' Income is for self employed.  This is a corp so this is zero.

f.  Corporate Profits = Retained Earning + Dividends + Taxes (taxes are still part of the profits, the corp must, obviously, give it to the government.)

g.  Personal Income = national income - Indirect bus taxes - Corp profits - SS contributions - Net Interest + Dividends + Gov Trans + Personal Interest Income

h.  Disposable Personal Income = Personal Income - Personal Taxes (Do not get fooled because both the owner and the workers pay taxes)

 

6. a. i. Nominal GDP is the total value of goods and services measured at current prices.

ii. Real GDP is the total value of goods and services measured at constant prices. Therefore, to calculate real GDP in 2018 (with base year 2010), multiply the quantities purchased in the year 2080 by the 2010 prices

iii. The implicit price deflator for GDP compares the current prices of all goods and services produced to the prices of the same goods and services in a base

year.