Macroeconomics

Final Grade 100/100

3. (Aggregate Demand and Supply) Review the information on demand and supply curves in Chapter 4. How do the aggregate demand and aggregate supply curves presented in this chapter differ from the market curves of chapter 4?

The demand curves in Chapter 4 show the relationship between the price of a single good and the quantity that consumers are willing and able to purchase. The supply curves show the relationship between the price of a single good and the quantity producers are willing and able to sell.

The aggregate demand curves show the relationship between the price level in the economy and the real GDP demanded. The aggregate supply curves show the quantity US producers are willing and able to supply at each given price level.

6. (Supply-Side Economics) One supply-side measure introduced by the Regan administration was cut in income tax rates. Use an aggregate demand/supply diagram to show what effect was intended. What might happen if such a tax cut also shifted the aggregate demand curve?

Ifa tax cut also shifted the aggregate demand curve, then price levels would increase as a result.

Chapter 5

I. (Income Approach to GDP) How does the income approach to measuring GDP differ from the expenditure approach? Explain the meaning of value added and its importance in the income approach. Consider the following data for the selling price at each stage in the production of a 5-pound bag of flour sold by your local grocer. Calculate the final market value of the flour.

Stage of Sale

Production Price

Farmer $0.30

Miller 0.50

Wholesaler 1.00

Grocer 1.50

a. The income approach totals the receipts for alt of the factors of production and others who receive money because of the process. The expenditure approach totals the amount spent on total consumption, investments, government purchases, net exports.

b. Value added means that at each stage from basic raw materials to final good, someone is adding something to the cost that the final consumer will pay. When someone is paid at any given stage, their money received will be added to GDP as income using the income approach (for the expenditure approach, only the sale to the final consumer is added to GDP, and only in the year of production; otherwise the value added is just lumped into the investment category).

c. $1.80

2. (Expenditure Approach to GDP) Given the following annual information about a hypothetical country, answer question a through d.

Chapter 6

Personal consumption expenditures Personal taxes

Exports Depreciation

Government purchases

Gross private domestic investment Imports

Billions of Dollars

$200

50

30

10

50

40

40

Government transfer payments 20

a. What is the value of GDP? $280

b. What is the value of net domestic product? $270

c. What is the value of net investment? $40

d. What is the value of net exports? ($10)

8. (Consumer Price Index) Calculate a new consumer price index for the data in the following exhibit. Assume that current-year prices of Twinkies, fuel oil, and cable TV are $0.95/package,

$1.25/gallon, and $15.00/month, respectively. Calculate the current year's coast of the market basket and the value of the current year's price index. What is this year's percentage change in the price level compared to the base year?

Current cost of the market basket =

a. Twinkies-

b. Fuel Oil-

c. Cable TV-

d. Percentage change-

9. (Consumer Price Index) Given the following data, what was the value of the consumer price index inthe base year? Calculate the annual rate of consumer price in 2013 in each of the following situations:

a. The CPI equals 200 in 2012 and 240 in 2013.

b. The CPI equals 150 in 2012 and 175 in 2013.

c. The CPI equals 325 in 2012 and 340 in 2013.

d. The CPI equals 325 in 2012 and 315 in 2013. (Io;,}