ECON 205 TUTE ANSWERS TUTE 1 8.

If nominal GDP has suddenly doubled, it is most likely due to an increase in the average price level. Therefore, the first thing you would want to check is by how much the GDP-deflator has changed, to calculate by how much real output (GDP) has changed. If nominal GDP and the GDP-deflator have both doubled, then real GDP should be the same. 11. GDP has some limitations, but is a good proxy for welfare. This might lead into discussions with the costs and benefits of collecting better data, and the difficulties that economists have with getting good measures of the data that they are interested in. Technical problems. 3.
3.a. Since depreciation D = Ig In = 800 200 = 600 ==> NDP = GDP D = 6000 600 = 5400. 3.b. From GDP = C + I + G + NX ==> NX = GDP C I G ==> NX = 6000 4000 800 1100 = 100. BS = TA G TR ==> (TA TR) = BS + G ==> (TA TR) = 30 + 1100 = 1130.

3.c.

3.d. YD = Y (TA TR) = 6000 1130 = 4870. 3.e. S = YD C = 4870 4000 = 870.

4.
4.a. S = YD C = 5100 3800 = 1300.

4.b. From S I = (G + TR TA) + NX ==> I = S (G + TR TA) NX = 1300 200 (100) = 1200. 4.c. From Y = C + I + G + NX ==> G = Y C I NX ==> G = 6000 3800 1200 ( 100) = 1100. Also: YD = Y TA + TR ==> TA TR = Y YD = 6000 5100 ==> TA TR = 900 From BS = TA TR G ==> G = (TA TR) BS = 900 (200) ==> G = 1100.