# Principles of Macroeconomics Problems

PROBLEM SET NUMBER FIVE

1.Assume that an economy produces three goods, mugs, jugs, and hugs.Hugs (of the Hershey variety) are their food source.Mugs and jugs are used for carrying water; they are good substitutes for each other.The quantities and prices for each of the goods in years one and two are given by the following table:

YEAR 1YEAR 2

goodquantitypricegood quantityprice

hugs200 \$2 hugs400\$3

mugs200 \$3mugs100\$8

jugs200 \$4jugs400\$3

a.What is nominal GDP in year 1?

b. What is real GDP in year 1? (Use year 1 as the base year.)

c. What is nominal GDP in year 2?

d. What is real GDP in year 2?

e. What is the percentage increase in nominal GDP?Real GDP?

f. What is the GDP price deflator for Years 1 and 2?

2.Using the data from problem 1), find the chain-type measures of GDP.

a.What is the rate of growth in real GDP using the chain-type technique (g)?

b.What is the level of chain-type real GDP in year 2?

c.What is the chain-type GDP price deflator for year 2?

3. Suppose that you are given the following data for the country of Trumpville:

consumption14,000net factor income from abroad 300

wages11,000interest payments2,000

investment3,600capital consumption allowance3,300

exports2,500government spending on goods3,600

imports3,100and services

profits3,700rental payments800

From the data provided, find

a.GDP using the expenditure approach.

b.GNP

c.NNP.

d.NI using the income approach.

e.statistical discrepancy.

(HINT:Trumpville is similar to the US economy for 2018, in billions of dollars.)

4.Go to the following website to read about an alternative measure of economic welfare known as the Genuine Progress Indicator:

http://www.sustainwellbeing.net/gpi.html

a.According to the website, is GDP a good measure of economic welfare?Why

or why not?

b.What is the Genuine Progress Indicator?How does it differ from GDP?

c.Briefly, how is the GPI calculated?

5.Go to the following websites to learn about the global footprint:

http://www.footprintnetwork.org/en/index.php/GFN/page/footprint_basics_overview/

Then take this quiz to determine your own global footprint:

http://www.footprintnetwork.org/en/index.php/GFN/page/calculators/

After viewing and completing the exercises contained on the sites, answer the following questions:

a.What is the ecological footprint?

b.How is the economy like a cow?

c. What is the ecological deficit?

d.If everyone around the world lived like Americans, how many planets would be necessary?

e.What is your global (or ecological) footprint?

f.What are the factors that contribute to your global footprint?

g.What are three concrete steps you could take to reduce your global footprint?

h.Why do people who live in New York City tend to have smaller footprints?