HW06_NIPA_a.docFoundations of Economic AnalysisStratton

Homework #6Name ______

Objective: to provide practice and assessment of your understanding of how economic activity is measured in the U.S.Your ability to demonstrate understanding, insight and/or the ability to use the material is the primary purpose of the assessment. Thus full credit will only be earned if you follow the directions carefully and provide the explanation, description, and thought process as directed. Each numbered question is worth 2 points – total 50 points.

Instructions:In your own words explain the key differences for each pair of terms, of the term(s)in the space provided or attach additional sheets if necessary.

Terms:

  1. Consumer price index and GDP deflator
  2. The rate of inflation and the core rate of inflation
  3. Expansion and Recession
  4. Fiscal Policy and Monetary Policy
  5. Inflation and deflation
  6. Labor force and employed persons
  7. Natural rate of unemployment and the current rate of unemployment
  8. Nominal GDP and Real GDP
  9. Saving and investment

Scenario 1:The Bureau of Economic Analysis provides data on GDP. One approach to calculating GDP is the expenditures approach. Use the BEA web site (as cited in your text) to obtain the expenditure data for the following questions.Be sure to answer the questions as completely as you can. If calculations are requested, show your work!

The table on the following page may help you organize your data.

  1. Why are the data on GDP (in current dollars using annual data) for 2003 different from the data in your textbook, Table 11.2)?
  2. How much did private inventories change (percentage) between 2003 and 2004? What can you infer from this change in inventories?
  3. What percentage of “real” GDP (GDP, chained dollars using annual data) is represented by investment expenditures (Gross Private Domestic Investment) in 2004?

What percentage of “real” GDP represents net exportsin 2004?

  1. Calculate the GDP deflator for 2003 and 2004?
  2. Using the answers in the above question, estimate the rate of inflation during 2004.

Scenario 2:The Bureau of Economic Analysis provides data on GDP. Another approach to calculating GDP is the incomes approach. In this approach payment to the factors of production, valued at factor market prices, is used to estimate economic activity. To determine GDP (valued at product market prices) requires some adjustments. Below is a summary of the relevant BEA tables from the BEA web site. (Similar to Table 11.3 in your text) Use these data for the following questions. Be sure to answer the questions as completely as you can. If calculations are requested, show your work!

  1. Explain the need for the adjustments to go from National Income to Personal Income (Table 1.7.5 line 16 to line 26). Specifically, what is being subtracted and why? What is being added and why? [Hint: just listing the items in the table is not sufficient. You must explain the need for the process and demonstrate your understanding of the difference between National and Personal Income.]
  2. Line 34 of Table 2.1 indicates that saving is about 2% of personal income. You can find cross-country comparisons of national (and personal) saving rates at . How does the U.S. compare?

Scenario 3:

The table below was complied using data from the BEA website. Use these data to answer the associated questions.Be sure to answer the questions as completely as you can. If calculations are requested, show your work!

  1. What insight do these data provide on the growth of government spending in the U.S.? Explain.
  2. What insight do these data provide on the source of our growing balance of trade deficit? Explain.

Scenario4: The diagram below provides a picture of the U.S. labor market. It depicts the flows of individuals between the 3 categories of labor market participation (Employed, Unemployed and Not in the Labor Force).

  1. Holding other things the same, explain what impact an increase in the number of job losers and leavers (flow 2.1) has on the unemployment rate.
  1. An increase in the number of discouraged workers will tend to increase which flow? Why?

Scenario5:The table below was complied using data from the BLS website. Use these data to answer the associated questions.Be sure to answer the questions as completely as you can. If calculations are requested, show your work!

  1. How is the GDP Deflator calculated from the data given? Calculate the GDP Deflator for the five years.
  2. Explain how to calculate the annual inflation rate.
  3. Calculate the annual inflation rateusing the CPI – All items.
  4. How can the Real GDP be estimated using CPI?

Calculate Real GDP using the Core CPI.

  1. Explain how to calculate the annual rate of growth in Real GDP.

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