Question 1

Suppose you purchase 10 gallons of gasoline at $2.80 per gallon on January 1. The gas station bought the gasoline the previous week at a wholesale price of $2.60 per gallon. What is the contribution to the current year’s GDP from your purchase?

Accepted Answer

$28.00, because the full retail value is counted in GDP.

Question 2

A Japanese company builds an auto plant in Tennessee for $100,000,000, using only local labor and materials. How is this transaction recorded in the U.S. national accounts?

Accepted Answer

It increases U.S. GDP by $100,000,000 and increases the capital account by $100,000,000.

Question 3

Colonel Hogwash purchases a Civil War–era mansion for $1,000,000. The broker’s fee is 6%. What is the contribution to the current year’s GDP?

Accepted Answer

$60,000, because only the broker’s fee is counted in GDP.

Question 4

A homemaker enters the workforce, earning $40,000 per year, and pays $16,000 for professional childcare. What is the net effect on GDP?

Accepted Answer

$16,000 increase, because the homemaker’s wage replaces unpaid work, but the childcare is a new market transaction.

Question 5

You win $3,000,000 in the New Jersey State Lottery, paid immediately. How does this affect GDP?

Accepted Answer

It does not affect GDP, because lottery winnings are transfers, not payments for goods or services.

Question 6

Hertz Rent-a-Car buys $100,000,000 of new cars from General Motors and sells its old fleet to used-car dealers for $40,000,000. The dealers resell the used cars to the public for $60,000,000. What is the total contribution to GDP from these transactions?

Accepted Answer

$100,000,000, because only the new cars are counted in GDP.

Question 7

Given the following data for an economy: Gross private domestic investment = 40, Government purchases = 30, GNP = 200, Current account balance = -20, Taxes = 60, Government transfer payments = 25, Government interest payments = 15, Factor income received from rest of world = 7, Factor payments made to rest of world = 9. What is the value of GDP?

Accepted Answer

$198

Question 8

Using the same data as above, what is the value of net exports?

Accepted Answer

$-20

Question 9

Given the labor supply function $N^S = 22 + 12w + 2T$ and the marginal product of labor $MPN = 309 - 2N$, with $T = 35$, what is the equilibrium real wage ($w$)?

Accepted Answer

$w = 5$

Question 10

With $T = 35$ and a minimum real wage law requiring $w \geq 7$, what is the resulting level of employment ($N$)? Use $N^S = 22 + 12w + 2T$ and $MPN = 309 - 2N$.

Accepted Answer

$N = 170$

Question 11

If the government increases lump-sum taxes ($T$) in the labor supply function $N^S = 22 + 12w + 2T$, what is the effect on labor supply and why?

Accepted Answer

Labor supply increases, because higher taxes reduce disposable income, increasing the incentive to work (income effect).

Question 12

Suppose the unemployment rate and the employment ratio both rise in the same month. Which of the following scenarios could explain this?

Accepted Answer

The labor force increases as more people start looking for work, and some find jobs while others remain unemployed.

Question 13

Can the participation rate fall at the same time that the employment ratio rises? Why or why not?

Accepted Answer

Yes, if people leave the labor force but the number of employed remains constant or increases.

Question 14

Given the following: Gross private domestic investment = $40$, Government purchases = $30$, Net exports = $-20$, and GDP = $198$. What is the value of consumption ($C$)? Use the expenditure approach: $GDP = C + I + G + NX$.

Accepted Answer

$C = 148$

Question 15

Given: Taxes = $60$, Government transfer payments = $25$, Government interest payments = $15$, Government purchases = $30$, and GDP = $198$. What is government saving ($S_g$)? Use $S_g = T - G - TR - INT$.

Accepted Answer

$S_g = -10$

Question 16

Given: GNP = $200$, GDP = $198$. What is net factor payments from abroad (NFPA)? Use $GNP = GDP + NFPA$.

Accepted Answer

$NFPA = 2$

Question 17

Suppose in a given month, 500,000 people become unemployed, 600,000 become employed, and 100,000 leave the labor force. What happens to the unemployment rate and participation rate?

Accepted Answer

Unemployment rate may rise or fall depending on the size of the labor force; participation rate falls.

Question 18

If the government pays you a $5,000 fee to appear in a TV commercial publicizing the state lottery, how is this recorded in GDP?

Accepted Answer

It is included in GDP as government consumption of services.

Macroeconomics Problem Set 1 – Guided Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards