Macroeconomics Homework 1 Essay

Principles of Macro sparings Homework 1 Please write down your answers as clearly as possible. 1. Below are some data from the soil of take out and honey. Year 2008 2009 2010 Price of Milk $1 $1 $2 Quantity of Milk degree Celsius quarts 200 200 Price of love life $2 $2 $4 Quantity of Honey 50 quarts blow snowa. Compute the token(a) gross domestic product, real gross domestic product, and the gross domestic product deflator for each year, victimization 2008 as the base year. calculating nominal gross domestic product2008 ($1 per qt. of take out hundred qts. milk) + ($2 per qt. of honey 50 qts. honey) = $200 2009 ($1 per qt. of milk 200 qts. milk) + ($2 per qt. of honey hundred qts. honey) = $ cd 2010 ($2 per qt. of milk 200 qts. milk) + ($4 per qt. of honey 100 qts. honey) = $800Calculating real gross domestic product (base year 2008) 2008 ($1 per qt. of milk 100 qts. milk) + ($2 per qt. of honey 50 qts. honey) = $200 2009 ($1 per qt. of milk 200 qts. milk) + ($2 p er qt. of honey 100 qts. honey) = $400 2010 ($1 per qt. of milk 200 qts. milk) + ($2 per qt. of honey 100 qts. honey) = $400Calculating the gross domestic product deflator 2008 ($200/$200) 100 = 100 2009 ($400/$400) 100 = 100 2010 ($800/$400) 100 = 2001b. Compute the portion neuter in nominal GDP, real GDP, and the GDP deflator in 2009 and 2010 from the earlier year. For each year, identify the variable that does not potpourri. Explain in actors line why your answer makes sense. Calculating the constituent change in nominal GDPPercentage change in nominal GDP in 2009 = *($400 $200)/$200+ 100 = 100%. Percentage change in nominal GDP in 2010 = *($800 $400)/$400+ 100 = 100%. Calculating the percentage change in real GDP Percentage change in real GDP in 2009 = *($400 $200)/$200+ 100 = 100%. Percentage change in real GDP in 2010 = *($400 $400)/$400 100 = 0%.Calculating the percentage change in GDP deflator Percentage change in the GDP deflator in 2009 = *(100 100)/10 0+ 100 = 0%. Percentage change in the GDP deflator in 2010 = *(200 100)/100+ 100 = 100%. Prices did not change from 2008 to 2009. Thus, the percentage change in the GDP deflator is zero. Likewise, output levels did not change from 2009 to 2010. This means that the percentage change in real GDP is zero.c. Did economic well-being hike more(prenominal) in 2009 or 2010? Explain. Economic well-being rose more in 2009 than in 2010, since real GDP rose in 2009 exclusively not in 2010. In 2009, real GDP rose barely prices did not. In 2010, real GDP did not rise only if prices did.2. What components of GDP in this year (if any) would each of the following transactions affects? How about natural GDP in this year? Explain. a. A family corrupts a sunrise(prenominal) refrigerator Consumption increases beca engage a refrigerator is a good purchased by a household. come in GDP increases by the same amount.b. Aunt Jane buys a new houseInvestment increases because a new house is an inves tment good. Total GDP increases by the same amount.c. Ford sells a Mustang from its caudex2Consumption increases because a car is a good purchased by a household, but investment falling offs because the car in Fords inventory had been counted as an investment good until it was sold. The increase in consumption cancels the mitigate in investment, so there is no change to the integral GDP (recall that GDP does not include the value from sale of used good)d. You buy a pizza from a local Pizza place.Consumption increases because pizza is a good purchased by a household. Total GDP increases by the same amount.e. California repaves Highway 101Government purchases increase because the presidential term spent money to provide a good to the public. Total GDP increases by the same amount.f. Your parents buy a bottle of French boozeConsumption increases because the bottle is a good purchased by a household, but net exports decrease because the bottle was imported. The increase in consump tion cancels the decrease in net exports, so there is no change to the total GDP (recall that GDP does not include the value of foreign produced goods)g. Honda downsizes its manufactory in Marysville, OhioInvestment decreases because some structures and equipment were put away. Total GDP decreases by the same amount.h. A senior lady in Cleveland receives social security system from the government. Neither any of the components nor the total GDP is affected. Because social security is a kind of transfer payment, which is not included in GDP. 3. Explain a. why a closed economys income moldiness equal its usance? A closed economys income must equal its expenditure, because either transaction has a buyer and a seller. Thus, expenditure by buyers must equal income by sellers.b. Why do economists use real GDP rather than nominal GDP to gauge economic wellbeing? Economists use real GDP rather than nominal GDP to gauge economic well-being because real GDP is not affected by changes in p rices, so it reflects only changes in the amounts being produced. Because it measures the economys labor of goods and services, it reflects the economys ability to satisfy peoples inescapably and desires. But nominal GDP is affected both by measuring rod and price. You cannot determine if a rise in nominal GDP has been caused by increased production or higher prices. Thus real GDP is a better gauge of economic well-being than is nominal GDP.