Purchase Solution

# GDP, CPI and Unemployment

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Use the table below: Value in billions
Personal consumption expenditures \$1000
Gross private domestic investment \$500
Net exports \$300
Imports \$180
Government purchases of goods and services \$280
Transfer payments \$90

What is the value of GDP?
b. In each of the following cases, indicate if GDP is affected, under what category and what happens to GDP. Be sure to explain why or why it is not included.
You buy a used textbook from one of your classmates.
You buy a new umbrella.
Ella, a French tourist, has a haircut in a salon in San Francisco.
Oklahoma cleans up after a devastating tornado.
A pension payment to a retired military person

2. Why do some people gain and other people lose from inflation and deflation?

3. a. Define the natural rate of unemployment. Identify three factors that may cause the natural rate to change over time.

b. What is structural unemployment? State the various reasons due to which it can arise in an economy.

##### Solution Summary

This discussion includes gross domestic product computation, natural rate of unemployment, and identification of losers and winners during inflation and deflation.

##### Solution Preview

Solution: (please see that attached file.)

GDP = C + I + G + (Net Export)
Consumption (C)
- Personal consumption expenditures \$1000
Investment (I)
- Gross private domestic investment \$500

Government Purchases (G) (Note: Transfer payments are not included here)
- Government purchases of goods and services \$280

Net Export (Note: Imports of \$180 is not included here since the account is already Net Exports, and it is assumed that the import (\$180) has already been deducted in the Net Exports computation. Including it in the computation is tantamount to double counting.)
- Net exports \$300
Personal consumption expenditures -------------------\$1000
Gross private domestic investment ------------------- \$500
Government purchases of goods and services ------- \$280
Net exports ----------------------------------------------- \$300
---------
GDP \$2,080 Billion

b. In each of the following cases, indicate if GDP is affected, under what category and what happens to GDP. Be sure to explain why or why it is not included.

You buy a used textbook from one of your classmates.
The GDP ...

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