Problem Set 1

Answer ALL questions from attached Problem Set. Must be on Word document. Please rewrite question, then answer. Thank you.

1) If Max receives an unemployment check, would we include that transfer payment from the government in this year’s GDP? Why or why not?

2) In the following situations, explain what is counted in this year’s GDP:
a. You bought a new Wii at GameStop last year and resold it on eBay this year.
b. You purchase an Investing for Dummies book at Barnes and Noble.
c. You purchase a historic home using the services of a real estate agent.
d. You purchase a tire to replace the damaged tire on your car.
e. You spend your Saturday cutting grass at your house.

3) To which component of GDP expenditure (C, I, G, or NX) does each of the following belong?
a. A tank purchased by the U.S. Army.
b. Swiss chocolates imported from Europe.
c. A new home.
d. A candy bar you purchase.

4) Many goods and services are illegally sold or legally sold, but not reported to the government. How would increased efforts to count those goods and services affect our calculation of GDP? Would it increase, decrease, or stay the same? Why?

5) Fill in the missing data in the following table:
Year Nominal GDP Real GDP GDP Deflator
2007 100000.00 90.00
2008 113000.00 100.00
2009 125000.00 114000.00
2010 150000.00 119.00
2011 145000.00 136.00