HmW 1_202_ONLINE

1 ECON 202_ONLINE Homework #1 50 points Carly McLaren 50118 1) Which of the following goods or services are included in the U.S. GDP, and which are not? Answer : ( circle or highlight the correct answer) (14 points) a. Medical services provided during a patient’s stay at the hospital Included Excluded b. Child care provided by a licensed day care center Included Excluded c. Grandmother watching her grandchildren in her spare time Included Excluded d. Sale of a used car Included Excluded e. Sale of a new car Included Excluded f. Commission of a car sales agent who helped you sell your used car Included Excluded g. Lawn mowing by a homeowner Included E xcluded h. Lawn mowing by a lawn mowing company Included Excluded i. The cost of college education Included Excluded j. Sale of cocaine in the night club Included Excluded k. Spending on home security, police, and prisons in order to reduce the crime rate I ncluded Excluded l. The cost of firms’ buying antipollution equipment required by the government Included Excluded m. Mary buying a pack of diapers and a frozen pizza in Costco (American wholesaler) in Michigan Included Excluded

2 n. John buying a pack of beer and two frozen pizzas in Costco (American wholesaler) in Toronto, Canada Included Excluded 2) Refer to the table below . For all of the questions below , show your calculations and the unit of account of your answers . 2011 2013 Product Quantity Price, $ Quantity Price, $ Hats 200 20 250 21 French fries 2,000 1 2,300 2 Digital cameras 40 200 50 140 a. Calculate nominal 2013 GDP Answer : (4 points) Nominal GDP= Sum of current year price * Current Year Quantity of all the goods ($21*250) +($2*2300) +($140*50)= $5250+ $4600 + $7000= $16850 b. Calculate real 2013 GDP Answer : (4 points) Real GDP= Sum of the base year price * Current year quantity of all the goods ($20*250) + ($1+ 2300) + ($200*50)= $5000 +$2300 +$10000= $17300 3) Consider a U.S.-based company Ford that is assembling its small cars in Mexico, using Mexican labor, and then exports them back to the U.S. The production of these cars will count (if at all) towards____________ ( circle all that applies ): Answer : (4 points) U.S. GDP U.S. GNP Mexican GDP Mexican GNP None of the above 4) The picture below shows an economy’s business cycle . a) Label both axes. (2 points) b) Find a point at which economy’s real GDP is the largest and label it A . (1 points) c) Find a point at which economy’s real GDP is the smallest and label it B .

4 Answer: Between b and c is slower than A and B which means the output elasticity of capital is large between B and C. A minor change in real GDP makes a larger change in the capital per hour worked. (2 points) c) What does the movement from point E to B to D illustrate? Answer: (2 points) E to B to D illustrates the technological process. With 60000 capital per hour the nation is able to increase the real GDP from 15000 to 15000 and then to 17000. d) What does the movement from point A to D illustrate? Answer: (2 points) The movement from A to D represents changes other than capital needed to make the change in the real GDP. The nation will be able to increase the real GDP from 50,000 to 60,000 e) The movement through which 3 points (out of 5 given) would indicate the largest increase in productivity? Answer: (2 points) E to B to D would indicate the largest increase of productivity. $2000(17,000-15,000) f) Suppose this country is currently on the Production function 2, at point C . If this country decides to reduce its funding and support of public education , which point on the graph would best illustrate what would happen to this economy as a result ? Answer: (2 points) C would move to A if the funding and support of public education was reduced 7) Briefly explain why the concept of “ labor productivity ” is important in macroeconomics. What is it used for in economics? Why do countries want their workers to be highly productive? Answer: (5 points)