ECON 1 - Principles of Macroeconomics Drake University, Fall 2012 William M. Boal

EXAMINATION 2

### Version A

I. Multiple choice [1 pt each: 9 pts total]

(1)c. (2)f. (3)a. (4)d. (5)b. (6)c. (7)b. (8)a. (9)b.

II. Problems

(1) [Macroeconomic record: 8 pts]

1. trended.
2. trended.
3. trended.
4. not trended.
5. not trended.
6. not trended.
7. trended.
8. trended.

(2) [Inflation: 2 pts] 2.8 percent.

(3) [Real interest rate: 2 pts] 4 percent.

(4) [Spending approach to GDP: 16 pts]

1. No, not produced in 2012.
2. yes, net exports (X).
3. Yes, government purchases (G).
4. Yes, investment (I).

(5) [Components of GDP: 16 pts]

1. C = \$500 billion, I = \$200 billion, G = \$100 billion, total GDP = \$800 billion.
2. Value added by raw concrete industry = \$250 billion.
Value added by building industry = \$50 billion.
Value added by birdbath industry = \$450 billion.

(6) [Investment spending: 4 pts]

1. \$2.3 trillion.
2. \$0.8 trillion.

(7) [Stocks v. flows: 4 pts]

1. stock.
2. flow.
3. flow.
4. stock.

(8) [Spending components of GDP: 8 pts]

2. \$ - 0.4 trillion.
3. \$10.2 trillion.
4. \$1.3 trillion.

(9) [Value added: 2 pts] \$70,000.

(10) [GDP and real GDP: 8 pts]

1. 26 percent.
2. 6 percent.
3. 5 percent.
4. 5.5 percent.

(11) [GDP and real GDP: 12 pts]
Real GDP per capita in 2002 = \$11,543 billion/288 million = \$40,080.
GDP deflator in 2002 = \$10,642 billion/\$11,543 billion x 100 = 92.19.
Nominal GDP in 2003 = 94.14/100 x \$11,836 billion = \$11,142 billion.
Annual inflation rate in 2003 = (94.14-92.19)/92.19 = 2.12 percent.
Real GDP in 2004 = \$11,853 billion / (96.79/100) = \$12,246 billion.
Population in 2004 = \$12,246 billion/\$41,761 = 293 million.

(12) [Using the CPI: 2 pts] \$17,569.

(13) [PPP exchange rate: 2 pts] 2.50 ringgits per U.S. dollar.

(14) [Using market exchange rate: 2 pts] \$54.

III. Critical thinking [4 pts]

(1) Real GDP usually grows faster than real GDP per capita. Real GDP per capita is defined as real GDP divided by population. Therefore the growth rate of real GDP per capita is approximately the growth rate of real GDP minus the growth rate of population. In most countries, population is growing--that is, the growth rate of population is positive. So the growth rate of real GDP per capita is less than the growth rate of real GDP.

(2) The GDP of Country A is exactly equal to the GDP of Country B. GDP is defined as the total value of goods and services produced in an economy during a specified period of time. Since this value is \$3 trillion in both Country A and Country B, the two countries must have the same GDP, regardless of differences in income distribution or pollution levels.

### Version B

I. Multiple choice [1 pt each: 9 pts total]

(1)b. (2)f. (3)b. (4)d. (5)c. (6)d. (7)c. (8)c. (9)c.

II. Problems

(1) [Macroeconomic record: 8 pts]

1. trended.
2. trended.
3. not trended.
4. trended.
5. not trended.
6. trended.
7. trended.
8. not trended.

(2) [Inflation: 2 pts] 1.4 percent.

(3) [Real interest rate: 2 pts] 3 percent.

(4) [Spending approach to GDP: 16 pts]

1. No, not produced in 2012.
2. yes, net exports (X).
3. Yes, investment (I).
4. Yes, government purchases (G).

(5) [Components of GDP: 16 pts]

1. C = \$900 billion, I = \$400 billion, G = \$300 billion, total GDP = \$1600 billion.
2. Value added by raw concrete industry = \$200 billion.
Value added by building industry = \$350 billion.
Value added by birdbath industry = \$800 billion.

(6) [Investment spending: 4 pts]

1. \$2.1 trillion.
2. \$0.6 trillion.

(7) [Stocks v. flows: 4 pts]

1. flow.
2. flow.
3. stock.
4. stock.

(8) [Spending components of GDP: 8 pts]

2. \$ - 0.4 trillion.
3. \$10.6 trillion.
4. \$1.2 trillion.

(9) [Value added: 2 pts] \$60,000.

(10) [GDP and real GDP: 8 pts]

1. 32 percent.
2. 12 percent.
3. 10 percent.
4. 11 percent.

(11) [GDP and real GDP: 12 pts]
Real GDP per capita in 2006 = \$12,959 billion/299 million = \$43,341.
GDP deflator in 2006 = \$13,377 billion/\$12,959 billion x 100 = 103.23.
Nominal GDP in 2007 = 106.23/100 x \$13,206 billion = \$14,029 billion.
Annual inflation rate in 2007 = (106.23-103.23)/103.23 = 2.91 percent.
Real GDP in 2008 = \$14,292 billion / (108.58/100) = \$13,163 billion.
Population in 2008 = \$13,163 billion/\$43,219 = 305 million.

(12) [Using the CPI: 2 pts] \$11,795.

(13) [PPP exchange rate: 2 pts] 40 bahts per U.S. dollar.

(14) [Using market exchange rate: 2 pts] \$81.

III. Critical thinking

Same as Version A.

### Version C

I. Multiple choice [1 pt each: 9 pts total]

(1)d. (2)e. (3)a. (4)c. (5)c. (6)d. (7)d. (8)b. (9)d.

II. Problems

(1) [Macroeconomic record: 8 pts]

1. not trended.
2. trended.
3. trended.
4. not trended.
5. trended.
6. trended.
7. not trended.
8. trended.

(2) [Inflation: 2 pts] 3.0 percent.

(3) [Real interest rate: 2 pts] 2 percent.

(4) [Spending approach to GDP: 16 pts]

1. Yes, investment (I).
2. yes, net exports (X).
3. Yes, consumption (C).
4. No, not produced in 2012.

(5) [Components of GDP: 16 pts]

1. C = \$300 billion, I = \$200 billion, G = \$80 billion, total GDP = \$580 billion.
2. Value added by raw concrete industry = \$40 billion.
Value added by building industry = \$190 billion.
Value added by birdbath industry = \$280 billion.

(6) [Investment spending: 4 pts]

1. \$1.6 trillion.
2. \$0.1 trillion.

(7) [Stocks v. flows: 4 pts]

1. stock.
2. flow.
3. stock.
4. flow.

(8) [Spending components of GDP: 8 pts]

2. \$ - 0.5 trillion.
3. \$1.0 trillion.
4. \$1.1 trillion.

(9) [Value added: 2 pts] \$90,000.

(10) [GDP and real GDP: 8 pts]

1. 35 percent.
2. 10 percent.
3. 8 percent.
4. 9 percent.

(11) [GDP and real GDP: 12 pts]
Real GDP per capita in 2009 = \$12,758 billion/307 million = \$41,557.
GDP deflator in 2009 = \$13,974 billion/\$12,758 billion x 100 = 109.53.
Nominal GDP in 2010 = 110.99/100 x \$13,063 billion = \$14,499 billion.
Annual inflation rate in 2010 = (110.99-109.53)/109.53 = 1.33 percent.
Real GDP in 2011 = \$13,299 billion / (113.36/100) = \$13,299 billion.
Population in 2011 = \$13,299 billion/\$42,620 = 312 million.

(12) [Using the CPI: 2 pts] \$23,630.

(13) [PPP exchange rate: 2 pts] 85 bahts per U.S. dollar.

(14) [Using market exchange rate: 2 pts] \$65.

III. Critical thinking

Same as Version A.