Version A

I. Multiple choice [1 pt each: 15 pts total]

(1)c. (2)a. (3)a. (4)d. (5)d. (6)c. (7)a. (8)a. (9)e. (10)c. (11)d. (12)b. (13)c. (14)d. (15)c.

II. Problems

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

1. NO. Not produced in 2024.
2. YES. Investment (I).
3. YES. Consumption (C).
4. YES. Net exports (X).

(2) [Components of GDP: 16 pts] Concrete Land

1. Consumption = $8 trillion, investment = $4 trillion, government purchases = $1 trillion, total GDP = $13 trillion.
2. Value added equals sales minus purchases of intermediate goods (raw concrete). Value added by Raw Concrete Industry = $3 trillion, by Building Industry = $3.5 trillion, by Road Construction Industry = 0.5 trillion, by Birdbath Industry = $6 trillion. (Note that total value added must equal GDP.)

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

1. $21.5 trillion = consumption + investment + government purchases + net exports.
2. $3.3 trillion = GDP - consumption - government purchases.
3. $65,152 = GDP in trillions × 1,000,000 / population in millions.

(4) [Spending approach: 12 pts]

1. $16.0 trillion = consumption of durable goods + consumption of nondurable goods + consumption of services.
2. $4.3 trillion = business fixed investment + residential investment + change in inventories.
3. $1.8 trillion = gross investment - depreciation.
4. $4.2 trillion = national defence purchases + federal nondefense purchases + state and local purchases.
5. trade deficit, because exports < imports.
6. $-0.8 trillion = exports - imports.

(5) [Stocks v. flows: 8 pts]

1. STOCK.
2. FLOW.
3. FLOW.
4. STOCK.

(6) [Value added: 2 pts] $400,000 = revenue - payments for intermediate goods (bicycle parts).

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

	Food		Clothing		Calculations
Year	Price	Quantity	Price	Quantity	2022 prices	2023 prices
2022	$2	25	$5	10	$100	$120
2023	$2	31	$7	10	$112	$132

1. 32 percent, using diagonal entries above because nominal GDP is computed using prices and quantities from the same period.
2. 12 percent, using entries in the first column (2022) above.
3. 10 percent, using entries in the second column (2023) above.
4. 11 percent, the average of the growth rate using constant 2022 prices and the growth rate using constant 2023 prices.

(8) [Nominal GDP, real GDP, and inflation: 7 pts] Data for Brazil

1. base year = 1995 (because nominal GDP = real GDP in that year).
2. GDP price index = nominal GDP / real GDP × 100 = 100.0, 118.4, 127.6.
3. Rate of inflation = (new price index - old price index) / (old price index) = 18.4 percent, 7.7 percent.

(9) [Using CPI: 2 pts] $6682.

(10) [Using market exchange rate: 2 pts] $55.

(11) [PPP exchange rate: 2 pts] 12.5 Chinese yuan per US dollar.

III. Critical thinking [4 pts]

(1) The two countries' GDPs are exactly equal. By definition, GDP equals the value of final goods and services produced in a country. We are given that these are identical in the two countries. Education and life expectancy can improve the quality of life in a country, but they have no direct effect on GDP.

(2) In the late nineteen century, the U.S. must have experienced deflation. Nominal GDP is the current value of goods and services produced in an economy. Real GDP is nominal GDP corrected for inflation. If the price level rises (inflation), real GDP grows more slowly than nominal GDP. If the price level falls (deflation), real GDP grows faster than nominal GDP as in this example.
These relationships can be demonstrated using the approximation formula for the percent change of ratios. The GDP price index is the ratio of nominal GDP to real GDP (times 100). So for small growth rates, the inflation rate equals the growth rate of nominal GDP minus the growth rate of real GDP. Therefore, if the growth rate of nominal GDP was less than the growth rate of real GDP in the U.S. during the late nineteenth century, then the inflation rate must have been negative--that is, the U.S. must have experienced deflation.

Version B

I. Multiple choice [1 pt each: 15 pts total]

(1)d. (2)c. (3)b. (4)a. (5)d. (6)b. (7)c. (8)b. (9)c. (10)b. (11)a. (12)b. (13)a. (14)a. (15)a.

II. Problems

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

1. YES. Government purchases (G).
2. YES. Consumption (C).
3. YES. Investment (I).
4. NO. Not produced in 2024.

(2) [Components of GDP: 16 pts] Concrete Land

1. Consumption = $80 billion, investment = $40 billion, government purchases = $20 billion, total GDP = $140 billion.
2. Value added equals sales minus purchases of intermediate goods (raw concrete). Value added by Raw Concrete Industry = $50 billion, by Building Industry = $30 billion, by Road Construction Industry = $10 billion, by Birdbath Industry = $50 billion. (Note that total value added must equal GDP.)

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

1. $23.5 trillion = consumption + investment + government purchases + net exports.
2. $3.3 trillion = GDP - consumption - government purchases.
3. $70,783 = GDP in trillions × 1,000,000 / population in millions.

(4) [Spending approach: 12 pts]

1. $18.6 trillion = consumption of durable goods + consumption of nondurable goods + consumption of services.
2. $4.8 trillion = business fixed investment + residential investment + change in inventories.
3. $1.8 trillion = gross investment - depreciation.
4. $4.8 trillion = national defence purchases + federal nondefense purchases + state and local purchases.
5. trade deficit, because exports < imports.
6. $-0.8 trillion = exports - imports.

(5) [Stocks v. flows: 8 pts]

1. STOCK.
2. FLOW.
3. STOCK.
4. FLOW.

(6) [Value added: 2 pts] $75,000 = revenue - payments for intermediate goods (tubs of ice cream, sugar cones, sprinkles, and sauces).

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

	Food		Clothing		Calculations
Year	Price	Quantity	Price	Quantity	2022 prices	2023 prices
2022	$5	20	$10	10	$200	$250
2023	$5	24	$15	10	$220	$270

1. 35 percent, using diagonal entries above because nominal GDP is computed using prices and quantities from the same period.
2. 10 percent, using entries in the first column (2022) above.
3. 8 percent, using entries in the second column (2023) above.
4. 9 percent, the average of the growth rate using constant 2022 prices and the growth rate using constant 2023 prices.

(8) [Nominal GDP, real GDP, and inflation: 7 pts] Data for Mexico

1. base year = 2018 (because nominal GDP = real GDP in that year).
2. GDP price index = nominal GDP / real GDP × = 89.2, 95.1, 100.0.
3. Rate of inflation = (new price index - old price index) / (old price index) = 6.6 percent, 5.2 percent.

(9) [Using CPI: 2 pts] $28,783.

(10) [Using market exchange rate: 2 pts] $59.

(11) [PPP exchange rate: 2 pts] 1.54 Australian dollars per U.S. dollar.

III. Critical thinking

Same as Version A.

[end of answer key]