Unit III Homework

1.) (Aggregate Demand and Supply) Review the information on demand and supply curves in Chapter 4. How do the aggregate demand and aggregate supply curves presented in this chapter differ from the market curves of chapter 4.

2.) One supply-side measure introduced by the Reagan administration was a cut in income tax rates. Use an aggregate demand/aggregate supply model to discuss what effect was intended. What might happen if such a tax cut also shifted the aggregate demand curve? Briefly explain.

3.)How does the income approach to measuring GDP differ from the expenditure approach? Explain the meaning of value added and its importance in the income approach. Consider the following data for the selling price at each stage in the production of a 5-pound bag of flour sold by your local grocer. Calculate the final market value of the flour. 

Stage of Production Sale Price 

Farmer $0.30 

Miller  $0.50 

Wholesaler $1.00

Grocer $1.50

4.) Given the following annual information about a hypothetical country, answer questions a through d. 

Billions of Dollars Personal consumption expenditures

 $200 Personal taxes 

$50 Exports 

$30 Depreciation 

$10 Government purchases

 $50 Gross private domestic investment

 $40 Imports 

$20 Government transfer payments 

a. What is the value GDP? 

 b. What is the value of net domestic product? 

c. What is the value of net investment? 

d. What is the value of net exports? 

5.)(Consumer Price Index) Given the following data, what was the value of the consumer price index in the base year? Calculate the annual rate of consumer price inflation in 2013 in each of the following situations. 

a. The CPI equals 200 in 2012 and 240 in 2013. 

 b. The CPI equal 150 in 2012 and 175 in 2013. 

 c. The CPI equals 325 in 2012 and 340 in 2013. 

 d. The CPI equals 325 in 2012 and 315 in 2013.