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.
Sales of wood S 1800
Rent paid 50
Wages paid 550
Profits 3 1200
Sales of wood chips 3 4200
Purchase of wood 1800
Wages paid 400
Interest paid 600
Pulp 8 Paper Mill:
Sales of paper 5 6500
Purchase of wood chips 4200
Interest paid 500
Wages paid 300
Profits 3 1500
Sales of wallpapers $8000
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
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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