Answers Assignment Two

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Assignment Two Answers

1. Glitter Gulch Real Output Change

   • Sales revenue increased from $100 million to $200 million.

   • Price of gold increased by 100%.

   • Real output change:

     • With price increase:

       • Sales revenue doubled with a doubled price implies same quantity sold.

       • Change in real output: $0 million.

     • Without price change:

       • Revenue doubled indicates quantity doubled.

       • Change in real output: $100 million (calculation: $200M - $100M).

2. Value Added by Firms A–E

   • Total Sales Value: $7,600 (Firm E).

   • Value added by each firm:

     • Firm A: $1,600

     • Firm B: $900 (2,500 - 1,600)

     • Firm C: $1,200 (3,700 - 2,500)

     • Firm D: $1,500 (5,200 - 3,700)

     • Firm E: $2,400 (7,600 - 5,200)

   • Total value added equals the final sales value $7,600.

3. GDP Calculations

   • Items included or excluded in this year’s GDP:

     • (a) Scholarship check: Excluded; not a productive resource income.

     • (b) New farm corncrib: Included; represents investment, produced this year.

     • (c) Used tractor: Excluded; previously counted when new.

     • (d) Savings bond cashing: Excluded; financial transaction.

     • (e) Mechanic services on own car: Excluded; non-market transaction.

     • (f) Social security checks: Excluded; transfer payment.

     • (g) Business inventories: Included; business investment.

     • (h) Government missiles: Included; government spending.

     • (i) Barber’s income: Included; payment for services.

     • (j) Interest on corporate bonds: Included; payment for capital resources.

     • (k) Selling corporate bond: Excluded; financial transaction.

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Price and Output Data Analysis

4. Price Index and GDP Calculations

   • Yearly price index calculations based on Year 2 as base year:

     • (a) Price index for Year 3: 4/3 = 133

     • (b) Nominal GDP for Year 4: 36 x $5 = $180

     • (c) Real GDP for Year 4: 180/1.67 = approximately $107.78

     • (d) Deflation and inflation guidance:

       • Deflate nominal GDP for Years: 3, 4, 5 (price index > 100).

       • Inflate nominal GDP for Year: 1 (price index < 100).

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Stereo Receiver Price Index and National Income Accounting

5. Price Index for Stereo Receivers

   • Yearly Price Index Calculations using Year 3 as base:

     • Year 1: $88/$120 = 0.733 or 73

     • Year 2: $100/$120 = 0.833 or 83

     • Year 3: $120/$120 = 1 or 100

     • Year 4: $132/$120 = 1.1 or 110

     • Year 5: $140/$120 = 1.167 or 117

6. Real GDP Calculation from Nominal GDP and Price Index

   • Provide calculations with inflation/deflation results:| Year | Nominal GDP | Price Index | Real GDP | Operation | |------|-------------|-------------|----------|------------| | 1 | $117 | 120 | $98 | Deflated | | 2 | $124 | 104 | $119 | Deflated | | 3 | $143 | 85 | $168 | Inflated | | 4 | $149 | 96 | $155 | Inflated | | 5 | $178 | 112 | $159 | Deflated | | 6 | $220 | 143 | $154 | Deflated |

   • Calculation Method: By dividing nominal GDP by the percent converted price index.