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# Equilibrium Output and GDP

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Assessment 6
1) Given the following data:
Year 1 Year 5
Consumption 600 960
Investment 134 340
Property Income earned overseas 75 120
Property income paid overseas 95 95
Subsidies 55 110
Indirect Taxes 85 150
Exports 80 150
Imports 105 125
Depreciation 70 90
Government Spending 280 270
Calculate for both years:
- GDP at market prices
- GNP at market prices
- GNP at factor cost
- Net National Product
- National Income
2) Given the following information:
TRILLIONS OF DOLLARS
Personal consumption expenditures \$3.0
Net private domestic investment 1.4
Depreciation 0.2
Government purchases of goods and services 2.0
Exports 0.5
Imports 0.3
Foreign factor income 0.1
- Compute the GDP
- Compute the net exports
3) Using the information in the following table, answer the following questions:

Component Number of people
(millions)
Total population 246
Working-age population 207
Labor force 139
Employed 133
Unemployed 6
- What is the unemployment rate?
- What is the labor force participation rate?
4) Consider the following graph, and determine the equilibrium level of income algebraically.

(AE = Total Spending, AP = Total Production or Total Output)
(Hint: The equilibrium level exists where AE = AP. Graphically, this is expressed at the point of intersection between the AE and AP curves. In this problem, consumption spending is the only component of AE. Therefore, equilibrium exists where the expenditures function intersects the AP curve (the 45 degree line).
5) Using demand and supply analysis, answer the following questions. What are the effects on the exchange rate between the British pound and the Japanese yen from:
a. An increase in Japanese interest rates
b. An increase in the price of British goods
c. An increase in British interest rates
6) Consider a country that initially consumes 100 pairs of shoes per hour, all of which are imported. The price of shoes is \$40 per pair before a ban on importing them is imposed. Use a graph to explain what happens to the price of shoes and the quantity of shoes consumed after a total ban on imports.
7) Use figure 2 below to answer to the following question:

Indicate where the economy is located if aggregate output is above the level of planned spending and if aggregate output is above the equilibrium level of output.
8) Use the graph to indicate where the economy is located if the interest rate is below the equilibrium level and people are holding less money than they desire.

9) Consider the following data for the United States and Switzerland:
GDP Deflator Switzerland GDP Deflator United States Market Exchange Rate
1980 85.7 76.0 2.49 francs/\$
1990 113.4 119.6 2.12 francs/\$
Compute the real exchange rate for 1980 and 1990.
(Real exch. rate = (exch. Rate*U.S. price index)/foreign price index)
10) Suppose that the economy starts at equilibrium and the mpc = 0.75. What would be the effect of a \$300 increase in government spending once all the rounds of the multiplier process are complete?
To calculate the change in equilibrium output, the following expression could be used:
DY = DG (1/ 1-mpc)

https://brainmass.com/economics/exchange-rates/equilibrium-output-gdp-269755

#### Solution Preview

1) Given the following data:
Year 1 Year 5
Consumption 600 960
Investment 134 340
Property Income earned overseas 75 120
Property income paid overseas 95 95
Subsidies 55 110
Indirect Taxes 85 150
Exports 80 150
Imports 105 125
Depreciation 70 90
Government Spending 280 270
Calculate for both years:
- GDP at market prices
GDP at market price is given by the sum of private consumption, gross investment, government spending, and net exports. Net exports in turn is Exports - Imports. Hence,
GDP, Year 1 = C + I + G + X - M = 600 + 134 + 280 + 80 - 105 = 989.
GDP, Year 5 = C + I + G + X - M = 960 + 340 + 270 + 150 - 125 = 1595.
2) Given the following information:
TRILLIONS OF DOLLARS
Personal consumption expenditures \$3.0
Net private domestic investment 1.4
Depreciation 0.2
Government purchases of goods and services 2.0
Exports 0.5
Imports 0.3
Foreign factor income 0.1
- Compute the GDP: Like in the last part, GDP = C + I + G + X - M. The difference is that in this case we have values for net investment, and not gross investment. Gross investment is equal to the sum of net investment and depreciation. Hence, we have I = Net Investment + Depreciation, and GDP = C + Net Investment + Depreciation + G + X - M = 3 + 1.4 + 0.2 + 2 + 0.5 - 0.3 = 6.8. Hence, GDP = 6.8.
- Compute the net exports: Net exports is given by X - M = 0.5 - 0.3 = 0.2.
3) Using the information in the following table, answer the following questions:

Component Number of people
(millions)
Total population 246
Working-age population 207
Labor force 139
Employed 133
Unemployed 6
- What is the unemployment rate? The unemployment rate is given by (Number of Unemployed / Labor Force) * 100 = (6/139) * 100 = 4.3165%.
- What is the labor force ...

#### Solution Summary

The expert calculates the change in equilibrium output in this case.

\$2.19