1. What is the gross domestic product of a country? What is meant by ‘intermediate goods’ and are they included in the measure of GDP? Suppose that the following table represents the goods and services produced in a very simple closed economy in 2016. Assume that steel is used as an input in the production of cars. Using that information, calculate the GDP for the year 2016?.
Product
Quantity
Price
Steel
1000
$100
iPods
5000
$300
Cars
500
$25 000
Legal Services
100
$2000
2. Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the next? When measuring real GDP, what does the term ‘chain volume measures’ refer to? Give reasons why measured GDP does not reflect total production in an economy.
3. What factors determine labour productivity? Outline the various actions the government sector should take to promote growth.
4. For each of the following, indicate if the person would be classified as employed, unemployed, or not in the labour force and why: (i) a 65-year-old man who left his job and is now working as a volunteer for 10 hours a week; (ii) a university graduate who has not been able to find a position using her skills and is working as a wait-person for 30 hours a week; and (iii) a manufacturing worker who is out of a job and has given up searching for a job.
5. Suppose 180 000 people are employed, 20 000 people are unemployed, and an additional 50 000 people are not in the labour force but are of working age. Calculate the labour force participation rate.
6. Suppose that a very simple economy produces three goods: pizzas, haircuts and backpacks. Suppose the quantities produced and their corresponding prices for 2009 and 2013 are as shown in the table:
Use the information in the table to compute real GDP in the years 2011 and 2015. Calculate real GDP in 2015 assuming the base year is 2011. Real GDP is found by valuing GDP in a particular year using base year prices. When 2011 is the base year, real GDP for 2015 is found by multiplying 2011 prices by 2015 quantities and then adding the values up. Does the same calculation assume the base year is 2013? Compare and explain the two results.
7. Use production functions from the economic growth model to explain why the United States of America grew at a much faster rate than the Soviet Union in the latter half of the 2
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