I have attached a study sheet with some basic calculations about expenditures and GDP as well as income. Just need some help figuring out the problems.
1. Consider the following hypothetical data for the US. Economy (in billions of dollars).
Durable Goods Consumption $ 497
Nondurable Goods Consumption 1, 301
Services Consumption 2,342
Business Fixed Investment 566
Residential Fixed Investment 224
Inventory Investment 7
Federal Government Purchases 449
State and Local Government Purchases 683
Excess of GNP over GDP 7
Indirect Business Taxes 551
Corporate Profits 387
Social Insurance Contributions 556
Net Interest 442
Government Transfers to Individuals 837
Personal Interest Income 694
Personal Tax and Non-tax Payments 645
(1) consumption expenditures
(2) investment expenditures
(3) government purchases
(4) the trade balance (or net exports)
(1) net national product
(2) (national) income
(3) personal income
(4) disposable income
2. Consider the following data for a simple economy with only two goods, bread and automobiles. In the following table are data for two different years:
P Q P Q
Autos $20,000 60 $30,000 100
Bread $5 700,000 $25 500,000
a. Using the year 2005 as the base year, compute the following statistics for the year 2007:
(1) nominal GDP
(2) real GDP
(3) the GDP deflator (a Paasche index)
(4) the CPI (a Laspeyres index)
b. Calculate the inflation rate between 2005 and 2007 using both the GDP deflator and the CPI. Compare your answers.
3. Suppose you were a senator writing a bill to index Social Security to inflation. Which index would you use, the GDP deflator or the CPI? Why? (this problem has nothing to do with #2).
Calculate the inflation rate.