# Intermediate Macroeconomics

Prepare your answers to the following questions as neatly as possible. Please make

sure to show all your work.

1. The following table shows various stages by which wood is turned into wallpapers

as the final product. The numbers are all in million dollars.

Forest Company:

Sales of wood S 1800

Expenses: 600

Rent paid 50

Wages paid 550

Profits 3 1200

Sales of wood chips 3 4200

Expenses: 2800

Purchase of wood 1800

Wages paid 400

Interest paid 600

Profits 1400

Pulp 8 Paper Mill:

Sales of paper 5 6500

Expenses: 5000

Purchase of wood chips 4200

Interest paid 500

Wages paid 300

Profits 3 1500

Wallgper Company:

Sales of wallpapers $8000

Expenses: 7300

Purchase of paper 6500

Interest paid 200

Wages paid 600

Profits 8 700

Assuming that wallpaper is the only final good in the economy, compute the value

of GDP for this economy using each of the final good, value-added, and income

approaches. Compare your results from the three approaches.

2. The economy of Fruitland produces four types of fruit apples. oranges pears and

grapes. The following table contains the production and price data for two

consecutive years.

Last Year Current Year

Fruit Quantity Price Quantity Price

Apples 5000 tons S 800 per ton 5500 tons S 800 per ton

Oranges 4500 tons S 10ooperton 43oomm 8 1200 perton

Pears 10ootons $6ooperton 11oomm $5ooperton

Grapes 3200 tons S 1200 per ton 3300 tons S 1250 per ton

a) What are the values of nominal and real GDP in each year?

b) How much did nominal GDP grow between the last year and the current yeaf?

c) How much did the real GDP grow between the last year and the current yeaf?

d) What was the percentage change in the overall price level (measured by the

GDP deflator) between the last and the current year?

3. A closed economy is charaaerized by the following information:

Subsistence consumption 8 40 milion

Propensity to consume 0.75

Investment 8 300 milion

Government Purchases S 450 milion

Taxes 8 400 milion

Find out each of the folowing values:

a) Equilibrium GDP (Y) d) Private Saving

b) Disposable income (Yo) e) Public Sav’ng

c) Consumption spending (C) t) The multiplier

4. Show the equilibrium in the above economy (as described in Questiona) on a

properly labelled diagram using Demand and Output lines. If the economy’s current

production is at $1800 million. how would you characterize the s’tuation ‘n the

economy? What needs to happen for this economy to be in equilibrium?

5. Suppose the money demand is given by M” = SY(0.25 – i ) and SY = $1000.

a) Whatisthe interestrateitM’=S200?

b) If the Central Bmk wanted to reduce the interest rab to 3%. how

much should it increase the money supply’?

c) Showyourresults in partsaand bon apropertylabelled diagam.

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