Chapter 2
1.What are the main difference between GDP and GNP?
2.Why does the base year matter in calculating real GDP?
3.Assume an economy with two firms. Firm A produces wheat and firm B produces
bread. In a given year, firm A produces 5000 tonnes of wheat, sells 2000 tonnes of wheat to firm B at $30 per tones, exports 2500 tonnes of wheat at $30 per tones, and stores 500 tonnes as inventory. Firm A pays $50000 in wages to consumers.
Firm B produces 50000 loaves of bread, and sells all of it to domestic consumers at $2 per loaf. Firm B pays consumers $20000 in wages. In addition to the 50000 loaves of bread consumers buy from firm B, imported bread and consume 15000 loaves of bread, and they pay $1 per loaf for this imported bread. Calculate GDP using a) the product approach, b) the expenditure approach, c) the income approach.
4.Jim’s Nursery produces and sells $1100 worth of flowers. Jim uses no
intermediate inputs. He pays his workers $700 in wages, pays $100 in taxes and pays $200 in interest on a loan. Jim’s contribution to GDP is
a)$900.
b)$1000.
c)$1100.
d)$1800.
5.For the following four questions, suppose that an economy produces only food
and clothing, and that price and quantity data are given in the table below.
Year 1
Price
Good Quantity
$6 Food 20
$8
Clothing 10
Year 2
Price
Good Quantity
$10 Food 25
Clothing 20
$7
1)Year 1 nominal GDP is
a)$200.
b)$270.
c)$310.
d)$390.
2)Year 2 nominal GDP is
a)$200.
b) $270.
c) $310.
d) $390.
3) Suppose that Year 1 is the base year.  Year 2 real GDP is
a) $200.
b) $270.
c) $310.
d) $390.
4) Suppose that Year 2 is the base year.  Year 1 real GDP is
a) $200.
b) $270.
imported foodc) $310.
d) $390.
Chapter 3
6. What are the characteristics of a steady state in the Solow growth model?
7. In Solow’s exogenous growth model, the principle obstacle to continuous growth in output per capita is due to
e) the declining marginal product of labor.
f) the declining marginal product of capital.
g) limits in the ability of government policymakers.
h) too little savings.
8. For the production function, . Does it display Constant returns to
scale? How about the production function, ? 64.036.0N zK Y =6.03.0N zK Y =

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