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# nominal GDP and real GDP

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1.Cindy has decided to retire in 24 yrs. She has \$30,000 available today and wants to invest the money to supplement her pension plan.

a. Assume cindy wants to accumulate \$150,000 by her retirement date. Will she achieve her goal is she invests \$30,000 today and earns 6 percent? Please show calculations supporting your answer.

b. If cindy invests a total of \$30,000 through a series of 24 equal annual installments at the end of the year instead of a single amount, would Cindy accumulate the desired \$100,000 at the 6 percent annual interest? The first investment would be made one yr from today. Please show calculations.

2. Rusty Smith plans to choose one of three investments. Investment A pays \$2,500 at the end of each yr for three yrs. Investment B pays \$8,500 at the end of 5 yrs. Investment C pays \$1,000 at the end of each yr for 4 yrs. and pays \$4,000 at the end of the fifth yr. Rusty requires a rate of return of 7 percent each of these investments.

a. What is the present value of investment A?
b. What is the present value of investment B?
c. What is the present value of Investment C?

3. You have decided to purchase a boat. You have found a well running boat that will cost you \$29,500. You can finance your purchase through the dealer at an annual rate of 24 percent for 24 months. The dealer requires a down payment of \$8,000.

a. What will be the amount of your monthly payments?
b. What will be the total amount paid to the dealer over the life of the car?
c. What will be the total amount of interest paid?

4. What is the consumer price index (CPI)? How is it measured? What are the pros and cons of using the CPI as a measure of the cost of living? Use examples in your response.

5. Suppose that you are the chief economic advisor to the president of the U.S. You are asked to propose a strategy to bring the economy out of recession. Your goal is to avoid inflation and yet bring the economy to full employment as rapidly as possible. What will be your main strategy? Why? Use examples and give reasons to support your strategy.

6. What is nominal GDP? What is real GDP? What is included in each? Why are these measures important? What do they tell us? What was GDP for the last two years? Use the data at the following Web site to answer this question, as well as the information in your text:
http://www.bea.gov/national/index.htm#gd

#### Solution Preview

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EXERCISE

1.Cindy has decided to retire in 24 yrs. She has \$30,000 available today and wants to invest the money to supplement her pension plan.

a. Assume cindy wants to accumulate \$150,000 by her retirement date. Will she achieve her goal is she invests \$30,000 today and earns 6 percent? Please show calculations supporting your answer.

b. If cindy invests a total of \$30,000 through a series of 24 equal annual installments at the end of the year instead of a single amount, would Cindy accumulate ...

#### Solution Summary

This post reiterates nominal GDP and real GDP.

\$2.19