Reference no: EM131384794
Intermediate Macroeconomics Assignment-
Q1. 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: $ 1800
Expenses: 600
Rent paid: 50
Wages paid: 550
Profits: $ 1200
Saw Mill -
Sales of wood chips: $ 4200
Expenses: 2800
Purchase of wood: 1800
Wages paid: 400
Interest paid: 600
Profits: 1400
Pulp & Paper Mill -
Sales of paper: $ 6500
Expenses: 5000
Purchase of wood chips: 4200
Interest paid: 500
Wages paid: 300
Profits: $ 1500
Wallpaper Company:
Sales of wallpapers: $8000
Expenses: 7300
Purchase of paper: 6500
Interest paid: 200
Wages paid: 600
Profits: $ 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.
Q2. 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.
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Last Year
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Current Year
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Fruit
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Quantity
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Price
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Quantity
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Price
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Apples
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5000 tons
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$ 800 per ton
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5500 tons
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$ 800 per ton
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Oranges
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4500 tons
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$1000 per ton
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4300 tons
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$1200 per ton
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Pears
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1000 tons
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$600 per ton
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1100 tons
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$500 per ton
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Grapes
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3200 tons
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$1200 per ton
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3300 tons
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$1250 per ton
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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 year?
c) How much did the real GDP grow between the last year and the current year?
d) What was the percentage change in the overall price level (measured by the GDP deflator) between the last and the current year?
Q3. A closed economy is characterized by the following information:
Subsistence consumption: $ 40 million
Propensity to consume: 0.75
Investment: $ 300 million
Government Purchases: $ 450 million
Taxes: $ 400 million
Find out each of the following values:
a) Equilibrium GDP (Y)
b) Disposable income (YD)
c) Consumption spending (C)
d) Private Saving
e) Public Saving
f) The multiplier
Q4. Show the equilibrium in the above economy (as described in Question3) 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 situation in the economy? What needs to happen for this economy to be in equilibrium?
Q5. Suppose the money demand is given by Md = $Y(0.25 - i) and $Y = $1000.
a) What is the interest rate if MS = $200?
b) If the Central Bank wanted to reduce the interest rate to 3%, how much should it increase the money supply?
c) Show your results in parts a and b on a properly labelled diagram.
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