Macroeconomics

Chapter 7 Assignment

ITEM 1. What’s in and What’s out?

Categorize the following items as either included in the calculation of GDP or excluded from it. Indicate the reason for your choice in each case.

• Hamburger buns bought by McDonald’s Corporation for making Big Macs

• A used macroeconomics textbook

• A new pair of Levi’s jeans

• Newly purchased shares of Google stock

• A new Chrysler P.T. Cruiser automobile

• A new Lexus SUV

• A newly purchased $10,000 U.S. Treasury Bill

• A cup of coffee purchased at Starbucks

ITEM 2 Calculating Nominal and Real GDP

Use the data in the following table, where it is assumed that only two

goods, bread and cake, are produced in an economy, and 2004 is the base year.

2004 2005

Qty of bread (billions) 5,000 6,000

Price of bread $2.50 $2.25

Qty of cake (billions) 1,200 1,150

Price of cake $4.00 $3.80

Calculate the following:

1. Nominal GDP in 2004 and 2005

2. Real GDP in 2004 and 2005