ECON 001 - Principles of Macroeconomics Drake University, Fall 2013 William M. Boal

EXAMINATION 2

### Version A

I. Multiple choice [1 pt each: 10 pts total]

(1)d. (2)a. (3)b. (4)a. (5)b. (6)c. (7)c. (8)b. (9)c. (10)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] 3.6 percent.

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

1. Yes, net exports (X).
2. Yes, investment (I).
3. Yes, investment (I).
4. No, not produced this year.

(4) [Components of GDP: 16 pts]

1. \$800 billion, \$400 billion, \$300 billion, \$1500 billion.
2. \$600 billion, \$100 billion, \$200 billion, \$600 billion.

(5) [Spending approach to GDP: 12 pts]

1. \$10.0 trillion.
2. \$2.3 trillion.
3. \$0.8 trillion.
4. \$3.0 trillion.
5. deficit.
6. -0.8 trillion (negative).

(6) [GDP, saving, GDP per capita: 6 pts]

1. \$15.0 trillion.
2. \$1.6 tillion.
3. \$48,387.

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

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

(8) [Value added: 2 pts] \$420,000.

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

1. 38 percent.
2. 17 percent.
3. 15 percent.
4. 16 percent.

(10) [GDP and real GDP: 7 pts]

1. 1995.
2. GDP price index = 100.0, 117.1, 126.0 .
3. Rate of inflation = 17.1 percent, 7.6 percent.

(11) [Using the CPI: 2 pts] \$2191.

(12) [PPP exchange rate: 2 pts] 25.64 Taiwan dollars per US dollar.

(13) [Using market exchange rate: 2 pts] \$612.

III. Critical thinking [3 pts]

(1) Yes, an economy could experience a recession while nominal GDP continues to grow if inflation is high enough. In a recession real GDP decreases. However, nominal GDP = real GDP × GDP price index / 100. Using the percent-change rule for products,

growth rate nominal GDP = growth rate real GDP + inflation rate.

So even if the growth rate of real GDP is negative, if the inflation rate is even larger, and positive, then nominal GDP will continue to grow.

(2) Country X and Country Y have exactly the same GDP. By definition, GDP equals the value of final goods and services produced annually in a country. So if that is equal in the two countries, then GDP is equal, regardless of education levels or life expectancies.

### Version B

p>I. Multiple choice [1 pt each: 10 pts total]

(1)b. (2)f. (3)a. (4)d. (5)b. (6)d. (7)d. (8)a. (9)b. (10)b.

II. Problems

(1) [Macroeconomic record: 8 pts]

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

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

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

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

(4) [Components of GDP: 16 pts]

1. \$300 billion, \$40 billion, \$100 billion, \$440 billion.
2. \$110 billion, \$30 billion, \$50 billion, \$250 billion.

(5) [Spending approach to GDP: 12 pts]

1. \$10.2 trillion.
2. \$2.2 trillion.
3. \$0.7 trillion.
4. \$3.2 trillion.
5. deficit.
6. -0.6 trillion (negative).

(6) [GDP, saving, GDP per capita: 6 pts]

1. \$16.3 trillion.
2. \$2.0 tillion.
3. \$51,911.

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

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

(8) [Value added: 2 pts] \$250,000.

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

1. 56 percent.
2. 6 percent.
3. 4 percent.
4. 5 percent.

(10) [GDP and real GDP: 7 pts]

1. 2004.
2. GDP price index = 93.5, 100.0, 103.2 .
3. Rate of inflation = 7.0 percent, 3.2 percent.

(11) [Using the CPI: 2 pts] \$777.

(12) [PPP exchange rate: 2 pts] 5.56 bolivars per US dollar.

(13) [Using market exchange rate: 2 pts] \$600.

III. Critical thinking

Same as Version A.

### Version C

p>I. Multiple choice [1 pt each: 10 pts total]

(1)c. (2)a. (3)c. (4)c. (5)c. (6)a. (7)a. (8)c. (9)d. (10)d.

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] 2.0 percent.

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

1. No, not a good or service produced.
2. Yes, investment (I).
3. No, not produced this year.
4. Yes, net exports (X).

(4) [Components of GDP: 16 pts]

1. \$200 billion, \$80 billion, \$100 billion, \$380 billion.
2. \$50 billion, \$65 billion, \$80 billion, \$185 billion.

(5) [Spending approach to GDP: 12 pts]

1. \$11.2 trillion.
2. \$2.5 trillion.
3. \$0.9 trillion.
4. \$3.2 trillion.
5. deficit.
6. -0.5 trillion (negative).

(6) [GDP, saving, GDP per capita: 6 pts]

1. \$14.7 trillion.
2. \$1.7 tillion.
3. \$48,197.

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

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

(8) [Value added: 2 pts] \$200,000.

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

1. 65 percent.
2. 12 percent.
3. 10 percent.
4. 11 percent.

(10) [GDP and real GDP: 7 pts]

1. 2005.
2. GDP price index = 89.1, 94.8, 100.0 .
3. Rate of inflation = 6.4 percent, 5.5 percent.

(11) [Using the CPI: 2 pts] \$4958.

(12) [PPP exchange rate: 2 pts] 0.95 Swiss francs per US dollar.

(13) [Using market exchange rate: 2 pts] \$560.

III. Critical thinking

Same as Version A.