Question

Problem set #1

1) If Joan receives a Social Security check, would we include that transfer payment from the government in this year’s GDP? Why or why not?

No, because transfer payments are not considered a part of GDP

2) In the following situations, explain what is counted in this year’s GDP:

A. You bought a new Wii at GameStop last year and resold it on eBay this year

B. You spend your Saturday cutting grass at your house

C. You purchase an Investing for Dummies book at Barnes and Noble

D. You purchase a historic home using the services of a real estate agent

E. You purchase a tire to replace the damaged tire on your car

3) To which component of GDP expenditure (C, I, G, or NX) does each of the following belong?

a. a new home

b. a parachute purchased by the US. Army

c. wheat imported from Canada

d. a cheeseburger you purchase for lunch

4) Many goods and services are illegally sold or legally sold but not reported to the government. How would increased efforts to count those goods and services affect our calculation of GDP? Would it increase, decrease or stay the same? Why?

5) Fill in the missing data in the following table: (Round to the nearest dollar)

Year	Nominal GDP	Real GDP	GDP Deflator
2009	100000		93
2010		117000	100
2011	125000	120000
2012	150000		119
2013		152000	136

Answer 1

1) Because transfer payments are not considered in the calculation of GDP, so the social security check received would not be counted

2) In the following situations, explain what is counted in this year’s GDP:

A. You bought a new Wii at GameStop last year and resold it on eBay this year-as it was produced in the last year so it will not be counted in this years GDP

B. You spend your Saturday cutting grass at your house-this will not be counted in the GDP

C. You purchase an Investing for Dummies book at Barnes and Noble-this will be included in the GDP as it is a consumption expenditure

D. You purchase a historic home using the services of a real estate agent- this will be included in the GDP for the services provided by the real estate agent

E. You purchase a tire to replace the damaged tire on your car-this will not be included in the GDP

3) To which component of GDP expenditure (C, I, G, or NX) does each of the following belong?

a. a new home - is an investment

b. a parachute purchased by the US. Army- is a government expenditure

c. wheat imported from Canada- is net exports

d. a cheeseburger you purchase for lunch - is consumption

4) An increased effort to count these goods and services in the calculation of GDP will result in an increase in the final value of GDP as real output will increase if we include these figures and so per capita GDP will be higher than before.

5) As GDP Deflator = Nominal GDP/Real GDP*100 so use the formula to calculate the missing values in the table

Year	Nominal GDP	Real GDP	GDP Deflator
2009	100000	107526	93
2010	117000	117000	100
2011	125000	120000	104
2012	150000	126050	119
2013	206720	152000	136