多恩布什宏觀經濟學課后答案

Chapter1

Problems

1.“Acountry'srateofeconomicgrowthisdeterminedsolelybytheamountofresources

availabletothecountry.11Commentonthisstatement.

Increasesintheavailabilityofresources,thatis,laborandcapitalusedintheproduction

ofgoodsandservicesaccountforonlypartofanation'seconomicgrowth.Theefficiency

withwhichthesefactorsofproductionareusedalsoaffectseconomicgrowth.Increases

intheefficiencyofproductionresultfromincreasesintheeducationandskilllevelsof

thelaborforceandfromnewerandmoreefficienttechnology.Inaddition,thefactorsof

productionarenotfullyemployedallthetime.Duringanexpansionorrecovery,theuse

ofthefactorsofproductionincreases,whichleadstoanincreaseinproductionand

output.

2.Inthe1960s,increasesintherateofunemploymentweregenerallyassociatedwithdecreases

intheinflationrateandviceversa.Butinthe1970sand1980sunemploymentandinflation

oftenmovedinthesamedirection.Howcanyouexplainthis?

Ashiftinaggregatedemandcausestheunemploymentrateandtheinflationratetomoveinopposite

directions,whereasashiftinaggregatesupplycausesunemploymentandinflationtomoveinthesame

direction.Mostdisturbancesinthe1960scamefromthedemandside,whilemanyofthedisturbancesin

the1970sand1980scamefromthesupplyside.

3.“Sincethelong-runAS-curveisvertical,wecanconcludethatthetotalrealoutputofanation

cannotgrowinthelongrun.**Commentonthisstatement.

TheAD-ASframeworkisastaticframeworkthatassumesthatthelevelofpotentialGDPisfixed.However,

thepotentialGDPofanationgrowsovertimeastheamountofavailableresourcesortheefficiencywith

whichtheseresourcesareusedincreases.Figure1-4inthetextclearlyindicatesthatthelong-run(vertical)

AS-curvemovestotherightbyasmallpercentageeachyear.

4.0Long-rungrowthcanbestbestudiedbyfocussingonthereasonsforbusinesscycles.**

Commentonthisstatement.

Growththeoryfocusesprimarilyontheaccumulationofinputsandimprovementsintechnologythat

allowforanincreasedstandardoflivingovertime.Sincegrowththeorytriestoexplaintheaverage

growthrateofaneconomyovermanyyears,itignorestheshort-runfluctuations(recessionsandbooms)

thatoccuroverthecourseofbusinesscycles.

5.HIntheveryshortrunrealoutputisfixedandthereforeanyincreaseinaggregatedemand

willsimplyincreasethepricelevelbutnotaffecthowmanygoodsandservicesareproducedin

aneconomy."Commentonthisstatement.

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Theshort-runAS-curveiscompletelyhorizontal,basedontheassumptionthatpricesare

constant.Anincreaseinaggregatedemandwillthereforeincreasethelevelofoutputbut

willnotaffectthepricelevel.Itfollowsthereforethatintheshortrunthelevelofoutput

issolelydeterminedbyaggregatedemand.

6.“Thereisalwaysacleartradeoffbetweenunemploymentandinflation.**Comment.

Theshort-runPhillipscurvedescribesanempiricalrelationshipbetweenwageandprice

inflationandtherateofunemployment.Thiscurveshowsthatthehighertherateof

unemployment,thelowertherateofinflationandviceversa(atleastintheshortrun).

However,inthelongrunthereisnoclear-cuttradeoffbetweeninflationand

unemployment.Theeconomiceventsofthe1970sand1980sshowedusthat

unemploymentandinflationcanincreaseordecreasesimultaneously.

7.Theindexofleadingeconomicindicatorsissupposedtosignalfuturedevelopmentsinthe

economyandiscalculatedfromvariablesindifferentsectorsoftheeconomy.Pickoneleading

economicindicatorfromeachofthefollowingsectorsandbrieflystatetherationalefor

includingthisindicatorinthecalculationoftheindex:

(1)thelaborsector,(2)businessactivity,(3)thefinancialsector,and(4)residential

construction.

Theanswertothisquestionisstudentspecific.Hereisasampleanswer.

Thelaborsector:

Employmentfiguresaswellastheunemploymentrateshouldbeusedtolookforchanges

inthelaborsector.Theunemploymentrateismoreoftendiscussedinthemedia,butthe

employmentfigureshavesmallercyclicalvariationsandarethusabetterindicatorof

labormarketconditions.

Businessactivity:

Neworders,changesininventories,capacityutilization,andindustrialproductionare

oftenusedtointerpretbusinessactivity.Whenusinginventorychangesitisimportantto

distinguishbetweendesiredinventorychanges,whichmayreflectchangesinbusiness

expectations,andundesiredinventorychangesthatreflectchangesinthedemandforthe

product.

Thefinancialsector:

Stockmarketactivity,changesinmoneysupply,orcreditconditionscanbeusedtoshow

trendsinfinancialmarkets.Whiletherelationshipbetweenchangesinstockvaluesand

theeconomyisnotascloseasitusedtobe,acontinuedincreaseinstockpricesgenerally

reflectsincreasedoptimismaboutfutureeconomicconditions.Italsomeansanincrease

inwealthforstockholdersandeasieraccesstofundsforfirmswishingtomakenew

investments.

Residentialconstruction:

Achangeinnewbuildingpermitsorhousingstartsmaybethefirstsignofchanging

economicconditions.Thehousingsectorisverysensitivetointerestratechangesand

tendstobeindicativeofothersectorsoftheeconomy,whichoftenreactinasimilarway

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althoughtoalesserdegreeandwithatimelag.

8.Brieflydiscusstheusefulnessofeachofthefollowingasleadingeconomicindicators:

(i)inventorychanges,(ii)theGDP-deflator,(iii)theunemploymentrate,(iv)theDow

JonesIndustrialAverage.

Desiredinventorychangesreflectchangesinbusinessexpectationsandcanbeusedasaleading

economicindicator.Butundesiredinventorychangesreflectchangesindemandfortheproductandare

thereforealaggingeconomicindicator.Onlyifonecanseparateoutdesiredfromundesiredinventory

changes,willitbepossibletospotmoreclearlysignsofanupcomingboomorrecession.

TheGDP-deflatoristhemostcompletepriceindex,sinceitmeasurespricechangesofallfinalgoods

andservicescurrentlyproducedinacountry.ButtheGDP-deflatorisalaggingindicator,showingwhat

hashappenedoverthelastquarter.Inaddition,initialGDPdatatendtobefairlyunreliableandhavetobe

frequentlyrevised.

Theunemploymentratehasfairlysmallcyclicalvariationsandisusedasameasureforvariationsin

thedemandforlabor.ChangesintheunemploymentratealsocorrespondwellwithchangesinGDP.But

theunemploymentrateisaconcurrentindicator.

Changesinstockvaluesgenerallyreflectchangesinexpectationsoffinancialinvestorsabout

dividends.Ifstockvaluesgouppeoplemayfeelwealthierandthusconsumerspendingmayincrease.

Firmsmayhaveaneasiertimeissuingnewstockandthustheymayinvestmore.Inthiscase,wecan

expectaneconomicupswing.However,changesinstockvaluesoftenmaysimplybeduetospeculative

behaviorandmaynotberelatedtorealeconomicactivity.

9.Ineachofthethreepairsbelow,whichvariablewouldyouchoose(andwhy)asaleadingeconomic

indicator:

(i)laborproductivityortheunemploymentrate

(ii)theCPIorthePPI

(iii)stockmarketchangesorhousingstarts

Laborproductivitygenerallyshowslongruntrendsinthelabormarketandwilldeterminewagesand

thereforelivingstandards.Itisaleadingindicator,butcannotbeeasilyusedforforecasting.

Theunemploymentratehasfairlysmallcyclicalvariationsandisusedasameasureforvariationsin

thedemandforlabor.Itisaveryaccuratemeasureofeconomicperformance—atleastasfarasthelabor

sectorisconcerned.However,theunemploymentrateisaconcurrentandnotaleadingindicator.

TheCPImeasuresthepriceincreaseofafixedmarketbasketof386goodsandservicespurchasedby

anaverageurbanfamily.TheCPIiseasilyavailableandissupposedtomeasurecostoflivingincreases.

However,theCPIisaconcurrentindicator.

ThePPImeasuresaveragepricechangesofamarketbasketofover1,000intermediategoodsupto

theretailstage.Itisrelativelyeasilyavailableandshowsfuturepricetrendswithrelativeaccuracy.The

PPIisaleadingindicatoranddoesnotalwayscorrespondexactlywiththeCPI.

Stockmarketchangesreflectchangesinexpectationsoffinancialinvestorsaboutdividendsarising

fromaperceivedchangeineconomicconditions.Ifstockvaluesincreaseconsumersmayfeelwealthier

(andthusspendmore),andfirmshaveaneasiertimeissuingnewstock(andthusinvestmore).Butwhile

achangeinstockvaluesmayindicateanupcomingchangeineconomicconditions,italsocouldsimply

havebeencausedbyspeculativebehavior.Thus,itisaleadingindicatorthatis,however,notalways

reliable.

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Thedemandforhousingisveryinterestsensitive,sincemortgageinterestpaymentsarealargepart

housingcosts.Housingstartstendtoincreasesharplywheninterestratesdroptolowlevels,thatis,when

theeconomyisatthebottomofarecession.Achangeinhousingstartsthusisoftenseenasaturning

pointintheeconomy,sinceothersectorsintheeconomyareexpectedtoreactsimilarlytochangesin

interestratesbutwithalagandtoalesserdegree.Theincreaseinconstructionworknaturallyalso

stimulateseconomicactivityinothersectorsoftheeconomy.Thushousingstartsisseenasafairly

reliableleadingeconomicindicator.

CHAPTER2

NATIONALINCOMEACCOUNTING

SolutionstoProblemsintheTextbook:

ConceptualProblems:

1.Governmenttransferpayments(TR)donotariseoutofanyproductionactivityandarethusnot

countedinthevalueofGDP.Ifthegovernmenthiredthepeoplewhocurrentlyreceivetransfer

payments,thentheirwageswouldbecountedaspartofgovernmentpurchases(G),whichiscounted

inGDP.ThereforeGDPwouldrise.

2.a.Ifthefirmbuysacarforanexecutive'suse,thepurchasecountsasinvestment(I).Butifthefirm

paystheexecutiveahighersalaryandshethenbuysacar,thepurchaseiscountedasconsumption

(C).

2.b.TheservicesthatahomemakerprovidesarenotcountedinGDP(regardlessoftheirvalue).However,

ifanindividualofficiallyhireshisorherspousetoperformhouseholddutiesatacertainwagerate,

thenthewagesearnedwillbecountedinGDPandGDPwillincrease.

2.c.IfyoubuyaGermancar,consumption(C)willincreasebutnetexports(NX=X-Q)willdecrease.

OverallGDPwillincreasebythevalueaddedattheforeigncardealership,sincetheimportpriceis

likelytobelessthanthesalesprice.IfyoubuyanAmericancar,consumptionandthusGDPwill

increase.(Note:Ifthecaryoubuycomesoutofthecardealer'sinventory,thentheincreaseinCwill

bepartiallyoffsetbeadeclineinI,andGDPwillagainonlyincreasebythevalueadded.)

3.GDPisthemarketvalueofallfinalgoodsandservicescurrentlyproducedwithinthecountry.(The

U.S.GDPincludesthevalueoftheHondasproducedbyaJapanese-ownedassemblyplantthatis

locatedintheU.S.,butitdoesnotincludethevalueofNikeshoesthatareproducedbyan

American-ownedshoefactorylocatedinMalaysia.)

GNPisthemarketvalueofallfinalgoodsandservicescurrentlyproducedusingassetsownedby

domesticresidents.(HerethevalueoftheHondasproducedbyaJapanese-ownedHondaplantisnot

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countedbutthevalueoftheNikesbytheAmerican-ownedshoeplantis.)

Neitherisnecessarilyabettermeasureoftheoutputofanation.TheactualvalueoftheGDPand

GNPfortheU.S.isfairlyclose.

4.TheNDP(netdomesticproduct)isdefinedasGDPminusdepreciation.Depreciationmeasuresthe

valueofthecapitalthatwearsoutduringtheproductionprocessandhastobereplaced.Therefore

NDPcomesclosertomeasuringthenetamountofgoodsproducedinthiscountry.Ifthisiswhatyou

wanttomeasure,thenNDPshouldbeused.

5.IncreasesinrealGDPdonotnecessarilymeanincreasesinwelfare.Forexample,ifthepopulation

ofacountryincreasesbymorethanrealGDP,thenthepopulationofthecountryisonaverageworse

off.Alsosomeincreasesinoutputcomefromwelfarereducingevents.Forexample,increased

pollutionmaycausemorelungcancer,andthetreatmentofthelungcancerwillcontributetoGDP.

Similarly,anincreaseincrimemayleadtoovertimeworkforpoliceofficers,whoseincreasedsalary

willincreaseGDP.Butthewelfareofthepeopleinthecountrymaynothaveincreasedineithercase.

Ontheotherhand,GDPdoesnotalwaysaccuratelymeasurequalityimprovementsingoodsor

services(fastercomputersorimprovedhealthcare)thatimprovepeople'swelfare.

6.TheCPI(consumerpriceindex)andthePPI(producerpriceindex)arebothmeasuredbylooking

atacertainmarketbasket.TheCPI'sbasketcontainsmostlyfinishedgoodsandservicesthat

consumerstendtobuyregularlyintheirdailylives.ThePPFsbasketcontainsrawmaterialsand

semi-finishedgoods,thatis,itmeasurescoststotheproducerofaproductanditsfirstuser.TheCPI

isaconcurrenteconomicindicator,whereasthePPIisaleadingeconomicindicator.

7.TheGDP-deflatorisapriceindexthatcoverstheaveragepriceincreaseofallfinalgoodsand

servicescurrentlyproducedwithinaneconomy.ItisdefinedastheratioofcurrentnominalGDPto

currentrealGDP.NominalGDPismeasuredincurrentdollars,whilerealGDPismeasuredin

so-calledbase-yeardollars.EventhoughearlyestimatesoftheGDP-deflatortendtobeunreliable,the

GDP-deflatorcanbeamoreusefulpriceindexthantheCPIorPPI(bothofwhicharefixedmarket

baskets).Thisistruefortworeasons:firstitmeasuresamuchwidercross-sectionofgoodsand

services;second,afixedmarketbasketcannotaccountforpeoplesubstitutingawayfromgoods

whoserelativepriceshavechanged,whiletheGDP-deflator,whichincludesallgoodsandservices

producedwithinthecountry,can.

8.IfnominalGDPhassuddenlydoubled,itismostlikelyduetoanincreaseintheaveragepricelevel.

Therefore,thefirstthingyouwouldwanttocheckisbyhowmuchtheGDP-deflatorhaschanged,to

calculatebyhowmuchrealoutput(GDP)haschanged.IfnominalGDPandtheGDP-deflatorhave

bothdoubled,thenrealGDPshouldbethesame.

9.Assumetheloanyoumadeyieldsyouanannualnominalreturnof7%.Iftherateofinflationis4%,

thenyourrateofreturninrealtermsisonly3%.If,ontheotherhand,ifinflationrateis10%,then

youwillactuallygetanegativerealrateofreturn,thatis,youwilllose3%ofyourpurchasingpower.

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Onewaytoprotectyourselfagainstsuchalossofpurchasingpoweristoadjusttheinterestratefor

inflation,thatis,toindextheloan.Inotherwords,youcanrequirethat,inadditiontothespecified

interestrateoftheloanof,let'ssay,3%,theborroweralsohastopayaninflationpremiumequalto

thepercentagechangeintheCPI.Inthiscase,arealrateofreturnof3%wouldbeguaranteed.

TechnicalProblems:

1.ThetextcalculatesthechangeinrealGDPin1992pricesinthefollowingway:

[RGDPoi-RGDP92]/RGDP92=[3.50-1.50]/l.50=1.33=133%.

TocalculatethechangeinrealGDPin2001prices,wefirsthavetocalculatetheGDPof1992in2001

prices.Thuswetakethequantitiesconsumedin1992andmultiplythembythepricesof2001,as

follows:

Beer1at$2.00=$2.00

Skittles1at$0.75=$0.75

Total

$2.75

ThechangeinrealGDPcannowbecalculatedas

[6.25-2.75]/2.75=1.27=127%.

WecanseethatthegrowthrateofrealGDPcalculatedthiswayisroughlythesameasthegrowth

ratecalculatedabove.

2.a.Therelationshipbetweenprivatedomesticsaving,investment,thebudgetdeficitandnetexportsis

shownbythefollowingidentity:

S-1=(G+TR-TA)+NX.

Therefore,ifweassumethattransferpayments(TR)remainconstant,thenanincreaseintaxes(TA)

hastobeoffseteitherbyanincreaseingovernmentpurchases(G),adecreaseinnetexports(NX),or

adecreaseinthedifferencebetweensaving(S)andinvestment(I).

2.b.FromtheequationYD三C+Sitfollowsthatanincreaseindisposableincome(YD)willbereflected

inanincreaseinconsumption(C),saving(S),orboth.

2.c.FromtheequationYD=C+Sitfollowsthatwheneitherconsumption(C)orsaving(S)increases,

disposableincome(YD)mustincreaseaswell.

3.a.SincedepreciationD=Ig-In=800-200=600==>

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NDP=GDP-D=6,000-600=5,400

3.b.FromGDP=C+I+G+NX==>NX=GDP-C-I-G==>

NX=6,000-4,000-800-1,100=100.

3.c.BS=TA-G-TR==>(TA-TR)=BS+G=>(TA-TR)=30+1,100=1,130

3.d.YD=Y-(TA-TR)=5,400-1,130=4,270

3.e.S=YD-C=4,270-4,000=270

4.a.S=YD-C=5,100-3,800=1,300

4.b.FromS-1=(G+TR-TA)+NX==>I=S-(G+TR-TA)-NX=1,300-200-(-100)=1,200.

4.c.FromY=C+I+G+NX==>G=Y-C-1-NX==>

G=6,000-3,800-1,200-(-100)=1,10().

Also:YD=Y-TA+TR==>TA-TR=Y-YD=6,000-5,100==>TA-TR=900

FromBS=TA-TR-G==>G=(TA-TR)-BS=900-(-200)==>G=1,100

5.AccordingtoEquation(2)inthetext,thevalueoftotaloutput(inbillionsofdollars)canbe

calculatedas:Y=laborpayments+capitalpayments+profits=$6+$2+$0=$8

6.a.SincenominalGDPisdefinedasthemarketvalueofallfinalgoodsandservicescurrentlyproduced

inthiscountry,wecanonlymeasurethevalueofthefinalproduct(bread),andthereforeweget$2

million(since1millionloavesaresoldat$2each).

6.b.AnalternativewayofmeasuringtotalGDPwouldbetocalculateallthevalueaddedateachstepof

production.Thetotalvalueoftheingredientsusedbythebakeriescanbecalculatedas:

1,200,000poundsofflour($1perpound)=1,200,000

100,000poundsofyeast($1perpound)=100,000

100,000poundsofsugar($1perpound)=100,000

100,000poundsofsalt($1perpound)=100,000

=1,500,000

Since$2,000,000worthofbreadissold,thetotalvalueaddedatthebakeriesis$500,000.

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7.IftheCPIincreasesfrom2.1to2.3,therateofinflationcanbecalculatedinthefollowingway:

rateofinflation=(2.3-2.1)/2.1=0.095=9.5%

TheCPIoftenoverstatesinflation,sinceitiscalculatedbyusingafixedmarketbasketofgoodsand

services.ButthefixedweightsintheCPI'smarketbasketcannotcapturethetendencyofconsumers

tosubstituteawayfromgoodswhoserelativepriceshaveincreased.Therefore,theCPIwilloverstate

theincreaseinconsumers*expenditures.

8.Therealinterestrate(r)isdefinedasthenominalinterestrate(i)minustherateofinflation(兀).

Thereforethenominalinterestrateistherealinterestrateplustherateofinflation,or

i=r+7t=3%+4%=7%.

AdditionalProblems

1.ExplaintheinitialeffectofthefollowingeventsonGDP.

a.Yousellyourusedcartoafriend.

b.Firmsdecreasetheirinventories.

c.ThevalueofyourAT&Tstockholdingdecreases.

d.Youbuyapieceoflandwiththeintentionofbuildinganewhouse.

e.AsportscarddealersellsaKenGriffey,Jr.rookiecardfor$100.

f.AGermantouristdrinksCanadianbeerinanAmericanrestaurant.

a.GDPwillnotchange,sinceausedcarisnotcurrentlyproduced.(Onlyifyousellthecarthrougha

dealerwillGDPincreasebythevalueoftheservicesrendered.)

b.Inventorychangesarepartofinvestment,soinvestmentwilldecrease.Butsomebodywillhavetobuy

theseinventories,soconsumptionwillincrease.Iftheinventoriesaresoldatapricehigherthan

invoice,thenGDPwillincreasebythevalueadded.

c.Alossinstockvaluesmeansalossinwealth,thereforeGDPisnotdirectlyaffected.Onlyifyour

dividendsdecreasewillyourincome(andthusGDP)beaffected.

d.Whenyouusesavingstobuyland,atransferofwealthtakesplaceandGDPisnotaffected.(Onlyifa

realestateagentreceivesacommissionwillGDPgoupbythevalueoftheservicesrendered.)

e.Whenthecarddealersellstherookiecard,inventorydecreases,soinvestmentgoesdown.Sellingthe

cardtoacustomerincreasesconsumption.ThusGDPincreasesonlybythevalueaddedatthedealer

forhisservicesrendered.

f.GDPwillincreasebythevalueaddedintheAmericanrestaurant.Ifthebeerwasimportedfrom

Canadafor$1.20andsold(exported)toaGermantouristfor$3.00,thennetexportswillincreaseby

$1.80.

2.HowwillthefollowingeventsaffectGDPandwhy?

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a.AhurricanedestroyspartofFlorida.

b.Yousellyouroldmacroeconomicstextbooktoanotherstudent.

c.YousellyourholdingsofIBMstock.

d.Yourlocalcardealershipdecidestoreduceitsinventorybyofferingpricereductions.

e.AretiredworkergetsanincreaseinSocialSecuritybenefits.

a.Whenahurricanedestroysproperty,wealthisaffected,notincome(orGDP).However,ifa

significantamountofthecapitalstockisdestroyed,thenlesscanbeproducedlater,leadingtoa

decreaseinGDP.Ontheotherhand,therebuildingofdestroyedpropertymeansthatincreased

economicactivitywilltakeplace,leadingtoanincreaseinGDP.

b.Thesaleofyouroldtextbookwillnotconstituteanofficialmarkettransaction(sinceyouprobably

willnotreportyourincometotheIRS).Inaddition,thetextbookhasalreadybeenusedandisnot

currentlyproduced.ThereforeGDPwillnotbeaffected.

c.Thesaleofexistingstockholdingsisatransferofwealthand,assuch,doesnotaffectGDP.Anyfees

thatyoumayhavetopayyourbrokerforhisorherservices,however,constitutepaymentforservices

rendered.GDPwillincreasebythatamount.

d.Inventorychangesarecountedaspartofinvestment.Areductioninbusinessinventorieswilllower

thelevelofinvestment(I)andthusGDP.However,thesalesofthecarscountasconsumption(C)if

consumersbuythem,orinvestment(I)iffirmsbuythem.ThustheneteffectonGDPdependsonthe

differencebetweenthecostofthecarstothedealershipandthesalespriceofthecars,thatis,the

valueadded.

e.TransferpaymentsthatdonotarisefromproductiveactivityarenotcountedinGDP.ThusGDPwill

notbeaffectedwhenSocialSecuritybenefitsarepaid.(Onlylater,whenthesepaymentsarespent,

willconsumptionincrease.)

3.IfnominalGDPinGermanyincreasedby2.8%lastyear,butU.S.GDPincreasedby4.2%,can

weconcludethatthewelfareofU.S.citizensincreasedbymorethanthatofGermancitizens?

Whyorwhynot?

Acountry'snominalGDPisnotagoodmeasureoftheeconomicwelfareofitspeople,

sincenominalGDPcanchangesolelyduetoinflation.OnlyifrealGDPgrowsfaster

thanpopulation,willrealincomepercapitaincrease.ButrealGDPpercapitastilldoes

nottakeintoaccountchangesinincomedistribution,changesinenvironmentalquality,

orleisure,allofwhichinfluencetheeconomicwelfareofthepeopleinacountry.

ThereforewecannotsaywhetherthewelfareofthepeopleintheU.S.hasincreasedmore

thanthatofthepeopleinGermany.

4.“RealpercapitaGDPisagoodmeasureofeconomicwelfare.**Commentonthisstatement.

RealGDPpercapitaisanimperfectmeasureofeconomicwelfareasitdoesnotincludenon-market

activitieswhichaffectwellbeing,suchasthevalueofhouseholdservices,volunteerwork,pollution,the

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lossofnaturalwildernessareasresultingfromdevelopment,andsoon.Inspiteoftheselimitations,

however,realGDPpercapitastilldoesprovidesomemeasureofeconomicwelfare.

5.AssumerealGDPin1992was$7,000billion,nominalGDPin1997was$8,316billion,andthe

GDP-deflatorhasincreasedfrom100to110from1992and1997.Whatistheaverageannual

growthrateofrealGDPfrom1992to1997?DoyouthinkthewelfareofallpeopleintheU.S.

hasincreasedduringthattime.Whyorwhynot?

RGDP=(NGDP/deflator)*100=(8.316/110)*100=7.56

GrowthrateofGDP=(7.56-7.0)/7.0=0.56/7=0.08=8%

ThusrealGDPhasgrown8%infiveyears,oratanaverageannualgrowthrateof1.6%.

Anincreaseinacountry'sGDPisnotagoodmeasureforanincreaseintheeconomicwelfareofits

people.Forexample,nominalGDPcanchangesolelyduetoinflation,andrealGDPhastogrowfaster

thanthepopulation,forrealincomepercapita,andthuslivingstandards,toincrease.ButrealGDPper

capitastilldoesnottakeintoaccountchangesintheincomedistribution,changesinenvironmental

quality,orchangesinleisure,allofwhichinfluencetheeconomicwelfareofthepeopleinacountry

6.ExplainwhyindirecttaxesaredeductedfromNDPtocalculatenationalincome(Y).

Indirecttaxesarenotpaidtofactorsofproductionfortheuseoftheirservices.Thereforetheyarenot

includedinnationalincome,whichmeasurestheincomeofallfactorsofproduction.

7.Comm