ISL244E Macroeconomics Problem Session -2. by Research Assistant Serkan Değirmenci ( Ph .D. Candidate ) D202/2 0-22 .02.201 2. # Today #. B (2009), Macroeconomics: - Chapter 2: A Tour of the Book (Pages: 41-61) Dig Deeper (DD) : 7 (Page: 59) GNH (2009), Macroeconomics in Context:
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- Chapter 2: A Tour of the Book (Pages: 41-61)
- Chapter 5: Macro. Measurement: The Current Approach (Pages: 95-124)
- Chapter 6: Macro. Measurement: Environmental and Social Dimension (Pages: 125-148)
Suppose that instead of cooking dinner for an hour, you decide to work an extra hour, earning an additional $12. You then purchase some (takeout) Chinese food, which costs you $10.
a. By how much does measured GDP increase?
b. Do you think the increase in measured GDP accurately reflects the effect on output of your decision to work? Explain.
a.Measured GDP increases by $10+$12=$22. (Strictly, this involves mixing the final goods and income approaches to GDP. Assume here that the $12 per hour of work creates a final good worth $12.)
b.No.The true value of your decision to work should be less than $22.
If you choose to work, the economy produces the value of your work plus a takeout meal. If you choose not to work, presumably the economy produces a home-cooked meal. The extra output arising from your choice to work is the value of your work plus any difference in value between takeout and home-cooked meals. In fact, however, the value of home-cooked meals is not counted in GDP. (Of course, there are other details. For example, the value of groceries used to produce home-cooked meals would be counted in GDP. Putting such details aside, however, the basic point is clear.)
a. wages paid by your local supermarket to its employees
b. profits received by a U.S. electronics firm from its factory in Mexico
c. business spending to replace worn-out equipment
d. wages paid by a U.S. electronics firm to the employees of its factory in Mexico
e. profits received by a Japanese automaker from its factory in the United States
a. national income, b. net income payments from the rest of the world, this is foreign production but domestic income c. depreciation d. not counted in any category (note that it reflects both foreign production and foreign income, so it is counted in neither GDP nor NI) e. net income payments from the rest of the world (negatively)—it is domestic production but foreign income
a. a new refrigerator bought by a family
b. a book newly produced in Indiana and bought by a store in Mexico
c. new computers, manufactured in Asia, bought by a U.S. accounting company
d. meals produced and served in Virginia to military personnel
e. new computers, produced in the U.S., bought by a U.S. computer retail chainand not yet sold by the end of the year
f. a 3-year old couch bought by a used furniture store in Arizona
g. cleaning services bought by a nonprofit hospital in New York
h. the services of volunteers in an environmental action campaign
a. durable goods. b. exports c. fixed investment (added) and imports (subtracted) d. national defense e. change in private inventories f. not counted in any category (not “newly produced”) g. services h. not counted in any category (since unpaid)
a. What is nominal GDP in each of the two years?
b. What is the growth rate of nominal GDP?
c. What is real GDP in each year, expressed in terms of constant Year 1 dollars?
d. What is the growth rate of real GDP (in constant Year 1 dollars)?
a. Year 1: $800. Year 2: $1000. b. 25%. c. Year 1: $800. Year 2: $880. d. 10%. (See spreadsheet table nextpage)
www.turkstat.gov.tr → National Accounts
Some products reduce well-being, tobacco being a specific additional example. Some outputs reflect defensive expenditures. Increased buying of sump pumps to counteract flooding would be an additional example. Measures of output do not account for the loss of leisure. Standard measures of output do not count education or community building activities as investments; time spent in these activities are seen as time not spent on “productive” activities. Some methods of production reduce well-being.Measures of output alone do not reflect the distribution of incomes. Students may think of more examples, as well as more entire categories.
a. Which factors are subtracted off, compared to Personal ConsumptionExpenditures, because they represent bad things?
b. Which factors are not included in GPI, even though they are included in GDP,because they are defensive expenditures or because of differences in accountingmethods?
a.Bad things subtracted from Personal Consumption Expenditures in the GPI: social costs such as the cost of crime and environmental costs include carbon dioxide emissions damage. Adjustments for income inequality and net foreign borrowing also reduce the GPI.
b.Defensive expenditures: all government spending except for services of highways and streets, are not included. Differences in accounting methods: (business) investment, consumer durables.
For example, in the 2007/2008 Human Development Report (online at http://hdr.undp.org/en/reports/global/hdr2007-2008/chapters/), in the tables for “Human Development Indicators” (at http://hdr.undp.org/en/media/hdr_20072008_en_indicator_tables.pdf), Table 1 contains information on the HDI displayed as, for example:
Other tables look at such factors as infant mortality and access to safe water. The notation “MDG” refers to the Millennium Development Goals (see Chapter 15 of this textbook.)
Students should be encouraged to look at the footnotes—and, if necessary, the text of the Report—to understand what these figures represent.
Life expectancy at birth (year): 72.2
Mean years of schooling (of adults) (years): 6.5
GDP Per Capita (2008 PPP US$):