Economics – Macroeconomics

Economics – Macroeconomics
There are five questions. Each question is worth one point.

1. Why is GDP the same whether computed via the “expenditures” approach or the “resource-cost income” approach?
Hint: This is a general question, but is applicable to questions 2-3.]

For questions 2-5, consider the following list of data for a country for a given year.
Amounts are in billions of dollars.
Your answers should be based on the U.S. national-accounts.
Hint: Before answeringquestions 2-3, read all questions 1-5.

Item Amount
Compensation of Employees (CE) 63
Consumption (C) 55
Depreciation (DEP) 20
Government consumption and gross investment (G) 13
Gross private investment (I) 35
Interest (INT) 6
Net exports of goods and services (NX) -3
Net income of foreigners (NIF) -1
Nonmarket Production (NMP) 20
Profits (PR) 5
Proprietors’ Income (PI) 2
Purchases of stocks by households and firms (PBS) 55
Profits (PR) 5
Proprietors’ Income (PI) 2
Rent (R) 3
Sales Taxes (ST) 2

2. Compute GDP via the “expenditures” approach. Show your work. You may refer to the items via the abbreviations shown.

3. Compute GDP via the “resource-cost income” approach. Build up GDP by first computing national income; then incorporate other items. Show your work. You may refer to the items via the abbreviations shown.

4. Two items in the list are negative. How can these items be negative and yet be components of GDP? Could these itemsbe positive and still be components of GDP? Explain carefully and thoroughly.

5.Two items in the list are not part of the answers to 2-3. Which are the items and why do they not enter the answers? Explain carefully and thoroughly.

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