Problem I
1. Last year, Middlebury, Vermont declared itself an independent nation and this year, for the first time, the new nation of Middlebury published its national accounts data. The report shows all the important data but the economists in Middlebury do not know how to calculate the important aggregates. Can you help them?
2. The data: (in U.S. dollars)
Material Production 60,000
Consumer expenditures 80,000
Subsidies 6,000
Rents 2,000
Net income from abroad -4,000
Government purchases 15,000
Indirect Taxes 2,000
Profits 18,000
Capital Consumption 6,000
Investment spending 12,000
Exports 30,000
Wages 70,000
Imports 35,000
Interest 10,000
Direct taxes 10,000
Services 42,000
Agriculture 30,000
3. Can you calculate the following Aggregates for Middlebury?
a. Gross Domestic Product ________________.
b. Gross National Product ________________.
c. Net Domestic Income at Factor Cost _______________.
d. Net Domestic Product an Market Price _______________.
e. Disposable Income _________________.
f. Saving __________________.
Problem II.
The new nation of Middlebury has constructed its own consumer price index using a market basket of goods purchased by the typical household in 1990. The prices and quantities are as follows:
Product Quantity in 1990 Price in 1990 Price in 1997
Video 1 unit $500 $200
Electricity 800 kwh 2 3
Gas 100 cm 2 1
Movie tkts 20 units 10 20
a. What is the CPI for 1997? ____________________________
b. Why is this figure likely to overstate the true increase in the cost of 7living?_________________________________________________
Problem III.
The new nation of Middlebury has constructed its own "GDP deflator" using the prices that prevailed in 1990. The prices and quantities are as follows:
Industry P in 1990 P in 1997 Qty in 1990 Qty in 1997
Milk $100 $200 10,000 9,000
Cheese 300 400 5,000 8,000
Eggs 50 300 2,000 3,000
A. Calculate Nominal GDP for
1. 1990 ___________________________________
2. 1997 ___________________________________
B. Calculate the GDP deflator for
1. 1990 ___________________________________
2. 1997 ___________________________________
C. Calculate Real GDP for
1. 1990 ___________________________________
2. 1997 ___________________________________