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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.

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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
Add:
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 ...

Solution Summary

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

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See Also This Related BrainMass Solution

GDP, Consumer price index, Unemployment rate

Calculate GDP, Consumer price index, Unemployment rate

(Please see the attached for the correctly formatted questions.)

Study Guide practice

Please show work for all the questions, this is my practice for the upcoming exam and I need to know the steps you take to get the answers.

QUESTION 1
Using exhibit 1
a. What is the nominal GDP in 2010?
b. What is the nominal GDP in 2011?
c. What is the real GDP in 2011 (using 2010 prices)?
d. What is the real GDP growth from 2010 to 2011?
e. What is the GDP deflator for 2011?

Exhibit 1
YEAR QUANTITY PRICES
Apples Bananas Apples Bananas
2010 200 50 $2.00 $1.00
2011 150 30 $1.50 $1.50

QUESTION 2
Using the information on exhibit 2 calculate the consumer price index in the current year.

Exhibit 2
Product Quantity in market basket Price in base year Price in current year
Bread 10 $1.00 $1.50
Milk 5 $1.00 $2.00
Gum 50 $1.20 $1.50

QUESTION 3
Using the information on Exhibit 3
a. What is the unemployment rate?
b. What is the labor participation rate?

Exhibit 3

Civilian noninstitutional population 228,693
Civilian labor force 145,838
Employed 141,579
QUESTION 4

Suppose that the country of Lexistonia has 2 industries: computers and airplanes. Lexistonia's population is 10,000. Computers are made by Computer Wizzards, Inc from worthless junk. Lexistonia airplane assembly plant buys computers from Computer Wizzards, Inc for $30 million. These computers are installed in airplanes. The airplane assembly plant sells 50 airplanes a year. The market price of an airplane is $1,000,000.

a. Calculate Lexistonia GDP using value-added approach
b. What is Lexistonia GDP per capita?

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