answers to technical problems in__ chapters.docVIP

Chapter 2 national income accounting Technical Problems 1. The text calculates the change in real GDP in 1996 prices in the following way: [RGDP04 - RGDP96]/RGDP96 = [3.50 - 1.50]/1.50 = 1.33 = 133%. To calculate the change in real GDP in 2004 prices, we first have to calculate the GDP of 1996 in 2004 prices. Thus we take the quantities consumed in 1996 and multiply them by the prices of 2004, as follows: Beer 1 at $2.00 = $2.00 Skittles 1 at $0.75 = $0.75 _______________________________ Total $2.75 The change in real GDP can now be calculated as [6.25 - 2.75]/2.75 = 1.27 = 127%. We can see that the growth rate of real GDP calculated this way is roughly the same as the growth rate calculated above. 2.a. The relationship between private domestic saving, private domestic investment, the budget deficit, and net exports is shown by the following identity: S - I ( (G + TR - TA) + NX. Therefore, if we assume that transfer payments (TR) remain constant, an increase in taxes (TA) has to be offset either by an increase in government purchases (G), an increase in net exports (NX), or a decrease in the difference between private domestic saving (S) and private domestic investment (I). 2.b. From the equation YD ( C + S it follows that an increase in disposable income (YD) will be reflected in an increase in consumption (C), saving (S), or both. 2.c. From the equation YD ( C + S it follows that when either consumption (C) or saving (S) increases, disposable income (YD) must increase as well. 3.a. Since depreciation is defined as D = Ig - In = 800 - 200 = 600 == NDP = GDP - D = 6,000 - 600 = 5,400. 3.b. From GDP = C + Ig + G + NX == NX = GDP - C – Ig - G == NX = 6,000 - 4,000 - 800 - 1,100 = 100. 3.c. BS = TA - G - TR == (TA - TR) = BS + G == (TA - TR) = 30 +