经济学原理Chapter22-23

Chp22

SOLUTIONS TO TEXT PROBLEMS:

Quick Quizzes: 1. Gross domestic product measures two things at once: (1) the total income of everyone in

the economy; and (2) the total expenditure on the economy’s output of goods and services. It can measure both of these things at once because income must equal expenditure for the economy as a whole.

2. The production of a pound of caviar contributes more to GDP than the production of a

pound of hamburger because the contribution to GDP is measured by market value and the price of a pound of caviar is much higher than the price of a pound of hamburger.

3. The four components of expenditure are: (1) consumption; (2) investment; (3)

government purchases; and (4) net exports. The largest component is consumption, which accounts for about two-thirds of total expenditure.

4. Nominal GDP is the production of goods and services valued at current prices. Real GDP

is the production of goods and services valued at constant prices. Real GDP is a better measure of economic well-being because it reflects the economy’s ability to satisfy people’s needs and desires. Thus a rise in real GDP means people have produced more goods and services, but a rise in nominal GDP could occur either because of increased production or because of higher prices.

5. Although GDP is not a perfect measure of well-being, policymakers should care about it

because a larger GDP means that a nation can afford better health care, better educational systems, and more of the material necessities of life.

Questions for Review: 1. An economy's income must equal its expenditure, since every transaction has a buyer and

a seller. Expenditure by buyers equals income by sellers.

2. The production of a luxury car contributes more to GDP than the production of an economy

car because the luxury car has a higher market value.

3. The contribution to GDP is $3, the market value of the bread, which is the final good that is

sold.

4. The sale of used records doesn't affect GDP at all because it involves no current

production.

5. The four components of GDP are consumption, such as the purchase of a music CD;

investment, such as the purchase of a computer by a business; government purchases, such as an order for military aircraft; and net exports, such as the sale of American wheat to Russia.

6. Economists use real GDP rather than nominal GDP to gauge economic well-being because

real GDP is not affected by changes in prices, so it reflects changes in the amounts being produced. If nominal GDP rises, you don’t know if that’s because of increased production or higher prices.

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Chapter 22 — MEASURING A NATION’S INCOME 2

Year 2001 2002 Nominal GDP 100 X $2 = $200 200 X $3 = $600 Real GDP 100 X $2 = $200 200 X $2 = $400 GDP Deflator ($200/$200) X 100 = 100 ($600/$400) X 100 = 150

The percentage change in nominal GDP is (600-200)/200 x 100 = 200%. The percentage change in real GDP is (400-200)/200 x 100 = 100%. The percentage change in the deflator is (150-100)/100 x 100 = 50%.

It is desirable for a country to have a large GDP because people could enjoy more goods and services. But GDP isn't the only important measure of well-being. For example, laws that restrict pollution cause GDP to be lower. If laws against pollution were eliminated, GDP would be higher but the pollution might make us worse off. Or, for example, an earthquake would raise GDP, as expenditures on cleanup, repair, and

rebuilding increase. But an earthquake is an undesirable event that lowers our welfare.

8.

Problems and Applications: 1. a. Consumption increases because a refrigerator is a good purchased by a

household.

b. Investment increases because a house is an investment good. c. Consumption increases because a car is a good purchased by a household, but

investment decreases because the car in Ford’s inventory had been counted as an investment good until it was sold.

d. Consumption increases because pizza is a good purchased by a household. e. Government purchases increase because the government spent money to provide

a good to the public.

f. Consumption increases because the bottle is a good purchased by a household,

but net exports decrease because the bottle was imported.

g. Investment increases because new structures and equipment were built.

2. With transfer payments, nothing is produced, so there is no contribution to GDP. 3. Purchases of new housing are included in the investment portion of GDP because housing

lasts for a long time. For the same reason, purchases of new cars could be thought of as investment, but by convention, they are not. The logic could apply to any durable good, such as household appliances.

4. If GDP included goods that are resold, it would be counting output of that particular year,

plus sales of goods produced in a previous year. It would double-count goods that were sold more than once and would count goods in GDP in several years if they were produced in one year and resold in another.

5. a. Calculating nominal GDP: 2001: ($1 per qt. of milk  100 qts. milk) + ($2 per qt. of honey  50 qts. honey)

= $200

2002: ($1 per qt. of milk  200 qts. milk) + ($2 per qt. of honey  100 qts. honey)

= $400

2003: ($2 per qt. of milk  200 qts. milk) + ($4 per qt. of honey  100 qts. honey)

= $800

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Chapter 22 — MEASURING A NATION’S INCOME 3

6.

Calculating real GDP (base year 2001): 2001: ($1 per qt. of milk  100 qts. milk) + ($2 per qt. of honey  50 qts. honey)

= $200

2002: ($1 per qt. of milk  200 qts. milk) + ($2 per qt. of honey  100 qts. honey)

= $400

2003: ($1 per qt. of milk  200 qts. milk) + ($2 per qt. of honey  100 qts. honey)

= $400

Calculating the GDP deflator: 2001: ($200/$200)  100 = 100 2002: ($400/$400)  100 = 100 2003: ($800/$400)  100 = 200

b. Calculating the percentage change in nominal GDP: Percentage change in nominal GDP in 2002 = [($400 - $200)/$200]  100 =

100%.

Percentage change in nominal GDP in 2003 = [($800 - $400)/$400]  100 =

100%.

Calculating the percentage change in real GDP: Percentage change in real GDP in 2002 = [($400 - $200)/$200]  100 = 100%. Percentage change in real GDP in 2003 = [($400 - $400)/$400]  100 = 0%.

Calculating the percentage change in GDP deflator: Percentage change in the GDP deflator in 2002 = [(100 - 100)/100]  100 = 0%. Percentage change in the GDP deflator in 2003 = [(200 - 100)/100]  100 =

100%.

c. Economic well-being rose more in 2002 than in 2003, since real GDP rose in 2002

but not in 2003. In 2002, real GDP rose and prices didn’t. In 2003, real GDP didn’t rise and prices did.

Year Nominal GDP GDP Deflator (billions) (base year: 1992) 1996 $7,662 110 1997 $8,111 112 a.

The growth rate of nominal GDP is ($8,111 - $7,662)/$7,662  100% = 5.9%. The growth rate of the deflator is (112 - 110)/110  100% = 1.8%. Real GDP in 1996 (in 1992 dollars) is $7,662/(110/100) = $6,965. Real GDP in 1997 (in 1992 dollars) is $8,111/(112/100) = $7,242. The growth rate of real GDP is ($7,242 - $6,965)/$6,965  100% = 4.0%. The growth rate of nominal GDP is higher than the growth rate of real GDP

because of inflation.

b.

c.

7.

d. e. f.

Economists ignore the rise in people's incomes that is caused by higher prices because although incomes are higher, the prices of the goods and services that people buy are also

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Chapter 22 — MEASURING A NATION’S INCOME

higher. Thus economists prefer to look at real GDP instead of nominal GDP.

4

8. 9.

Many possible answers. a. b. c. d. e.

GDP equals the dollar amount Barry collects, which is $400. NNP = GDP – depreciation = $400 - $50 = $350.

National income = NNP - sales taxes = $350 - $30 = $320.

Personal income = national income - retained earnings = $320 - $100 = $220. Disposable personal income = personal income - personal income tax = $220 - $70 = $150.

In countries like India, people produce and consume a fair amount of food at home that is not included in GDP. So GDP per person in India and the United States will differ by more than their comparative economic well-being.

If the government cares about the total income of Americans, it will emphasize GNP, since that measure includes the income of Americans that is earned abroad. If the government cares about the total amount of economic activity occurring in the United States, it will emphasize GDP, which measures production in the country, whether produced by domestic citizens or foreigners. a. b.

The increased labor-force participation of women has increased GDP in the United States, since it means more people are working.

If our measure of well-being included time spent working in the home and taking leisure, it wouldn't rise as much as GDP, since the rise in women's labor-force participation has reduced time spent working in the home and taking leisure. Other aspects of well-being that are associated with the rise in women's increased labor-force participation include increased self-esteem and prestige for women in the workforce, especially at managerial levels, but decreased quality time spent with children, whose parents have less time to spend with them. Such aspects would be quite difficult to measure.

10. 11.

12.

c.

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Chapter 22 — MEASURING A NATION’S INCOME 5

Chapter 23

SOLUTIONS TO TEXT PROBLEMS:

Quick Quizzes 1. The consumer price index tries to measure the overall cost of the goods and services

bought by a typical consumer. It is constructed by surveying consumers to fix a basket of goods and services that the typical consumer buys, finding the prices of the goods and services over time, computing the cost of the basket at different times, choosing a base year, computing the index, then computing the inflation rate.

2. Since Henry Ford paid his workers $5 a day in 1914 and the consumer price index was 10

in 1914 and 166 in 1999, then the Ford paycheck was worth $5  166/10 = $83 a day in 1999 dollars.

Questions for Review 1. A 10 percent increase in the price of chicken has a greater effect on the consumer price

index than a 10 percent increase in the price of caviar because chicken is a bigger part of the average consumer's market basket.

2. The three problems in the consumer price index as a measure of the cost of living are: (1)

substitution bias, which arises because people substitute toward goods that have become relatively less expensive; (2) the introduction of new goods, which are not reflected quickly in the CPI; and (3) unmeasured quality change.

3. If the price of a Navy submarine rises, there is no effect on the consumer price index, since

Navy submarines aren't consumer goods. But the GDP price index is affected, since Navy submarines are included in GDP.

4. Since the overall price level doubled, but the price of the candy bar rose sixfold, the real

price (the price adjusted for inflation) of the candy bar tripled.

5. The nominal interest rate is the rate of interest paid on a loan in dollar terms. The real

interest rate is the rate of interest corrected for inflation. The real interest rate is the nominal interest rate minus the rate of inflation.

Problems and Applications 1. a. The price of tennis balls increases 0%; the price of tennis racquets increases 50%

[=($60-$40)/$40 x 100%]; the price of Gatorade increases 100% [= ($2 - $1)/$1 x 100%].

To find the percentage change in the overall price level, follow these steps:

1. Determine the fixed basket of goods: 100 balls, 10 racquets, 200

Gatorades

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Chapter 22 — MEASURING A NATION’S INCOME

Find the price of each good in each year: Year 2001 2002 3.

Balls $2 $2 Racquets $40 $60 Gatorade $1 $2 6

Compute the cost of the basket of goods in each year: 2001: (100 x $2) + (10 x $40) + (200 x $1) = $800 2002: (100 x $2) + (10 x $60) + (200 x $2) = $1,200

Choose one year as a base year (2001) and compute the CPI in each year: 2001: $800/$800 x 100 = 100 2002: $1,200/$800 x 100 = 150

Use the CPI to compute the inflation rate from the previous year: 2002: (150 - 100)/100 x 100% = 50%

4.

5.

b.

Tennis racquets are less expensive relative to Gatorade, since their price rose 50% while the price of Gatorade rose 100%. The well-being of some people changes relative to the well-being of others. Those who purchase a lot of Gatorade

become worse off relative to those who purchase a lot of tennis racquets or tennis balls.

2.

To find the percentage change in the overall price level, follow these steps: a. b.

Determine the fixed basket of goods: 100 heads of cauliflower, 50 bunches of broccoli, 500 carrots

Find the price of each good in each year:

Year 2001 2002 c.

Cauliflower $2 $3 Broccoli $1.50 $1.50 Carrots $0.10 $0.20 Compute the cost of the basket of goods in each year:

2001: (100 x $2) + (50 x $1.50) + (500 x $.10) = $325 2002: (100 x $3) + (50 x $1.50) + (500 x $.20) = $475

Choose one year as a base year (2001) and compute the CPI in each year:

2001: $325/$325 x 100 = 100 2002: $475/$325 x 100 = 146 Use the CPI to compute the inflation rate from the previous year:

2002: (146-100)/100 x 100% = 46%

d.

e.

3.

Since the CPI rose 637%, that means [CPI(1997)-CPI(1947)]/CPI(1947) x 100% = 637%, so CPI(1997)/CPI(1947) -1 = 6.37, so CPI(1997)/CPI(1947) = 7.37. So if an item costs under 7.37 times as much in 1997 than it did in 1947, then it's relatively less expensive. The easiest way to see this is to take the 1947 price, multiply it by 7.37, and compare it to the 1997 price.

University of Iowa tuition: $130 x 7.37 = $958 < $2,470, so the 1997 cost is higher

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Chapter 22 — MEASURING A NATION’S INCOME

gallon of gasoline: $0.23 x 7.37 = $1.70 > $1.22, so the 1997 cost is lower phone call: $2.50 x 7.37 = $18.42 > $0.45, so the 1997 cost is lower day in hospital: $35 x 7.37 = $258 < $2,300, so the 1997 cost is higher hamburger: $0.15 x 7.37 = $1.11 > $0.59, so the 1997 cost is lower a. b.

Since the increase in cost was considered a quality improvement, there was no increase registered in the CPI.

7

4.

The argument in favor of this is that consumers are getting a better good than before, so the price increase equals the improvement in quality. The problem is that the increased cost might exceed the value of the improvement in air quality, so consumers are worse off. In this case, it would be better for the CPI to at least partially reflect the higher cost.

5. 6.

a. introduction of new goods; b. unmeasured quality change; c. substitution bias; d.

unmeasured quality change; e. substitution bias a. b. c. d.

($0.75 - $0.15)/$0.15 x 100% = 400%. ($13.84 - $3.35)/$3.35 x 100% = 313%.

In 1970: $.15/($3.35/60) = 2.7 minutes. In 1999: $.75/($13.84/60) = 3.3 minutes.

Workers' purchasing power fell in terms of newspapers.

If the elderly consume the same market basket as other people, Social Security would provide the elderly with an improvement in their standard of living each year because the CPI overstates inflation and Social Security payments are tied to the CPI.

Since the elderly consume more health care than younger people, and since health care costs have risen faster than overall inflation, it's possible that the elderly are worse off. To investigate this, you'd need to put together a market basket for the elderly, which would have a higher weight on health care. You'd then compare the rise in the cost of the \"elderly\" basket with that of the general basket for CPI.

7.

a.

b.

8.

Many answers are possible. A common answer may be that as students, they spend a greater proportion of their income on tuition and books than the typical household. Since the prices of tuition and books have risen faster than average prices, students face a higher inflation rate than the typical household.

When bracket creep occurred, inflation increased people's nominal incomes, pushing them into higher tax brackets, so they had to pay a higher proportion of their incomes in taxes, even though they weren't getting higher real incomes. As a result, real tax revenue rose. In deciding how much income to save for retirement, workers should consider the real interest rate, since they care about their purchasing power in the future, not the number of dollars they’ll have. a.

When inflation is higher than was expected, the real interest rate is lower than expected. For example, suppose the market equilibrium has an expected real interest rate of 3% and people expect inflation to be 4%, so the nominal interest

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9. 10. 11.

Chapter 22 — MEASURING A NATION’S INCOME 8

b.

rate is 7%. If inflation turns out to be 5%, the real interest rate is 7% minus 5% equals 2%, which is less than the 3% that was expected.

Since the real interest rate is lower than was expected, the lender loses and the borrower gains. The borrower is repaying the loan with dollars that are worth less than was expected.

Homeowners in the 1970s who had fixed-rate mortgages from the 1960s benefited from the unexpected inflation, while the banks who made the mortgage loans lost a lot of money.

c.

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