GDP and Consumer Price Index Assignment
Name: ___________________________ Date: ____________________
What components of GDP (if any) would each of the following transactions affect?
Scenario Component of GDP affected: C, I, G, NE, or NC
(not counted)
Effect on GDP (increase, decrease, no
change)
1. A farmer purchases a new tractor ________________ ________________
2. Business increase their current inventories ________________ ________________
3. You spend $7 to attend a movie ________________ ________________
4. A retired man cashed his social security check from the
government ________________ ________________
5. A French company purchases a one-year membership to
PartyPeople.com, a U.S. based ________________ ________________
6. A person pays $450 a month to rent an apartment ________________ ________________ 7. Worried about a recession, people begin saving more money ________________ ________________ 8. The U.S. government hires 10 Chinese-language experts from
China to train U.S. workers ________________ ________________
9. Government closes school for the month of March ________________ ________________ 10. A plumber’s purchase of a used truck ________________ ________________ 11. The services of a mechanic in fixing the radiator on his car ________________ ________________ 12. The government’s purchase of a new submarine for the Navy ________________ ________________ 13. A barber’s income from cutting hair ________________ ________________ 14. A family pays a contractor $100,000 for a house he built for
them this year ________________ ________________
15. A family pays $75,000 for a house built three years ago ________________ ________________ 16. An accountant pays a tailor $175 to sew a suit for her ________________ ________________ 17. Ford Motor Company buys new auto-making robots ________________ ________________ 18. Apple Computer Company builds a new factory ________________ ________________ 19. You buy a new Toyota that was made in Japan ________________ ________________ 20. You pay tuition to attend college ________________ ________________ 21. A birdhouse sold at a flea market ________________ ________________ 22. A business purchases computer software and a PC ________________ ________________ 23. A family buys a new refrigerator ________________ ________________ 24. A mother sells her house in New York to a Japanese woman for
$500,000 ________________ ________________
25. A retailer purchases tennis shoes from a Chinese manufacturer,
then sells them ________________ ________________
26. BMW expands its factory in Spartanburg, South Carolina ________________ ________________
27. China buys chips from Micron ________________ ________________
Below are some data on GDP. Fill in the missing areas on the table.
Year 1 Year 2 Year 3
Gross Domestic Product 4,532 4,804 _______
Consumption ______ 3,320 3,544
Investment 589 629 673
Government Spending 861 _______ 977
Net Exports -45 -58 -54
a. What is the largest expenditure component of GDP?
b. Do government purchases include government spending on unemployment checks? Why?
Jeffrey has a summer job at a logging camp. From mid-June until mid-August, he cuts down trees for $10 per hour. Each tree Jeffrey cuts down is sold to a sawmill for $5. The sawmill saws the tree into boards, which it sells at $1.25 per board to a lumber-processing company. The company treats the boards so that they resist moisture and sells them to a distributor for $2.50 per board. In mid-August Jeffrey’s neighbor, Ted, pays the distributor $250 to buy boards to build a new deck.
a. What amount of value is contributed to GDP when the distributor sells 50 boards to Ted?
b. Explain how the price of the lumber reflects the value of work done by Jeffrey and the various businesses involved.
c. What component of GDP is increased by Ted’s purchase? What component would be increased if he had used the lumber to expand his business?
Cassandra has been a vice-president for a large accounting firm. Since she and her husband have decided they wanted a family, Cassandra leaves her job and remains at home. Did Cassandra’s decision increase, decrease, or have effect on GDP? Explain your answer.
You are an economist who has been asked to calculate your nation’s GDP, which produces only three goods/services. Calculate nominal GDP for Year 1 and Year 2. GDP = Price x Quantity.
Year 1 Nominal GDP Year 2 Nominal GDP
Good Price Quantity GDP Good Price Quantity GDP
Oil changes $15 5 _______ Oil Changes $18 6 _______
Hamburgers $2 20 _______ Hamburgers $3 25 _______
MP3 players $150 3 _______ MP3 players $175 5 _______
TOTAL: _______ TOTAL: _______
a. How much did nominal GDP increase from Year 1 to Year 2?
Now calculate Year 2 real GDP using Year 1 as the base year (that means you use Year 1 prices to calculate Year 2’s GDP)
Year 1 Real GDP Year 2 Real GDP (Year 1 base year)
Good Price Quantity GDP Good Price Quantity GDP
Oil changes $15 5 _______ Oil Changes $15 6 _______
Hamburgers $2 20 _______ Hamburgers $2 25 _______
MP3 players $150 3 _______ MP3 players $150 5 _______
TOTAL: _______ TOTAL: _______
a. How much did Year 2’s nominal GDP overstate GDP in Year 2 when compared to real GDP?
b. How much did real GDP increase from Year 1 to Year 2?
c. Why is it important to adjust nominal GDP to real GDP to account for inflation?
Below are some data about the land of milk and honey!!!
Year Price of Milk Quantity of Milk
(quarts) Price of Honey
Quantity of Honey (quarts)
2009 $1 100 $2 50
2010 $2 200 $3 100
2011 $3 400 $4 200
a. Compute Nominal GDP for 2009, 2010, and 2011. (Need to show your work to receive credit)
b. Compute Real GDP for 2009, 2010, and 2011. Use 2009 as the base year. (Need to show your work to receive credit)
c. Compute the Growth Rate in Real GDP between 2009 and 2010 and 2010 and 2011. (Need to show your work to receive credit)
d. Compute the GDP Deflator for each year. (Need to show your work to receive credit)
e. Compute the Inflation Rate from 2009 to 2010 and from 2010 to 2011. (Need to show your work to receive credit)
f. Did economic well-being rise more in 2010 or 2011? Explain.
Assume that a country has a closed economy with only three goods/services (no net exports). In a given year, the economy produces: a) three haircuts at $10 each; b) two factory machines at $100 each; and c) one highway repair that costs $500.
b. What percent of GDP is consumption?
c. What percent of GDP is investment?
d. What percent of GDP is government spending?
The consumer price index is a measure of the average change in prices of a certain number of goods and services. The Bureau of Labor Statistics measures items in terms of 1982-1984 base period prices. The CPI for 1983 is set at 100.
CPI = Current Cost Cost in 1983
If you know the CPI for a given commodity and its cost in 1983, you can find the current cost by multiplying the cost in 1983 by the CPI and then dividing by 100.
Current Cost = Cost in 1983 x CPI 100
If you know the CPI for a given commodity and its current cost, you can find the cost in 1983 by dividing the current cost by the CPI and multiplying by 100.
Cost in Base Year = Current Cost CPI
Complete the table. Round to the nearest tenth or cent.
Item CPI Current Cost Cost in 1983
New Home ______________ $148,700.00 $61,068.00
Groceries ______________ 94.05 45.70
Condo Rent 237.1 ______________ 421.76
Home Ins. 116.6 ______________ 818.16
Fuel Oil 261.7 217.50 ______________
Cell Phone 37.9 37.90 ______________
Lawn Chair ______________ 75.00 37.50
Good Pair of Socks 13.3 ______________ 14.99
Handheld Calculators 96.5 37.99 ______________
Computer software ______________ 79.99 153.32
Running Shoes ______________ 75.00 50.00
Movie Ticket ______________ 8.00 6.25
Motorcycle 144.7 ______________ 3750.00
Vacuum Cleaner 176.9 249.00 ______________
Magazine 168.3 3.95 ______________
X 100