Econowaugh AP: GDP

Showing posts with label GDP. Show all posts

Tuesday, April 14, 2020

ALL GDP FRQ's

ALL GDP FRQ's

2011B AP Macroeconomics Exam

(A.) 2009 is the base year calculate the following

(i) NGDP in 2010

NGDP = P x Q

so, 8 x 2.5 = $20

10 x 10 = $100

5 x 5 = $25

Total 2010 NGDP = $145

(ii) The Real GDP in 2010

We find the RGDP

by using the quantity produced in the current year x prices of the base year

2.5 x 8 = $20

6 x 10 = $60

4 x 5 = $20

RGDP 2010 = $100

(B.) If one years price index is 50 and in the next year the index is 55, what is the rate of inflation from one year to the next?

Rate of Change Formula ((New - Old)/Old) x 100

55-50 = 5

5/50 = .1 x 100 = 10

rate of inflation = 10%

I also like the method in this scenario of doubling both numbers

50 x 2 = 100

55 x 2 = 110

rate of inflation from one year to the next = 10%

this works well if you can divide by 2 also

if the price index = 200 one year and 250 the next

200/2 = 100

250/2 = 125

Rate of inflation from 100 to 125 = 25% inflation

(C.) Next years wages will be 3% higher, but the actual inflation rate is 4%. At the beginning of next year will the real wage be higher or lower or the same as today?

If we get a raise and Nominal Wages increase by 30% we are very happy

but ,, if the PL (Inflation) rises by 4%, all things are 4%more expensive

then we are worse off even with our wage increase

Our Real wages fell by 1%

(D.) Sara gets a fixed rate loan from a bank when the expected inflation rate is 3%.

If actual inflation is 4%who benefits from the unexpected inflation, Sara, the Bank or neither?

If Sara got a loan at 3% and actual inflation is more than expected then Sara benefits

for now she is paying back money that has a lower purchasing power

2008B AP Macroeconomics Exam

(A.) Calculate the NGDP.

NGDP = P x Q

400 x $6 = $2,400

1,000 x $2 = $2,000

800 x $2 = $1,600

NGDP = $6,000

(B.) GDP Deflator is 100 in the base year,, and 150 this year. Calculate each of the following.

(i) The inflation rate, expressed as a percentage, between the base year and this year.

Rate of Change Question

100 to 150 = 50% increase

(ii) This years RGDP

If given the NGDP and the Index (CPI or Deflator)

NGDP/Index = RGDP

6,000/1.5 = $4,000

(C.) The workers received a 20% increase in nominal wages, but workers face the inflation you calculated in B(ii), what happened to their real wages?

Nominal - Inflation = Real

Nom Wages increase by 20% (Yippe) but inflation (the price of everything) went up by 50%

your real wages fell by 30%

Your real wages = the actual goods you can buy after the inflation increase

(D.) If the GDP deflator increases unexpectantly, would a borrower be better off , worse off, Explain.

If you borrow and inflation increases, you are paying back the loan with money that can buy less stuff

Ha, ha, take that lender.

The borrower benefits.

Cheat sheet for inflation here

2007 AP Macroeconomics Exam

(A.) Vale if a used textbook.

No, Why? Used - already counted in previous year

(B.) Rent Paid in 2006 by resident in an apartment building built in 2000.

Yes, Why? Rent is a service in the market economy.

(C.) Commissions earned in 2006 by a stock broker.

Yes, Why? Commissions are a service in the market economy.

(D.) The value of an automobile produced in 2006 in South Korea by a firm fully owned by the US citizens.

No, Why? Produced in a foreign country (not domestically produced)

Friday, February 17, 2017

2012 Macro Multiple Choice - GDP

2012 Macro Multiple Choice - GDP

(A) An increase in real per capita gross domestic product

(B) nominal per capita GDP has more to due with inflation increase

(D) A balanced budget - Taxes collected = government expenditures - doesn't really speak to standards of living.

(E) CPI - has to due with inflation,, and an increase might have made people worse off.

Answer - (D)

GDP = C + I + GS + XN

Consumption = $3000

Investment = $700

GS = $1,000

XN = Exports - Imports = 300 - 500 = -200

$3,000 + $700 + $1,000 + 300 - 500 = $4,500

Answer - (A) $4,500

Monday, November 14, 2016

2008 B Macro FRQ #3

2008 B Macro FRQ #3

Watch me answer it here

https://youtu.be/rbnxY6mXN0o

(A) Calculate this year's nominal gross domestic product (GDP).

The GDP Cheat Sheet here.

Nominal GDP is simply this years GDP,

Price of the goods this year multiplied by the quantity produced

(B) Assume that in Gala Land the GDP deflator (GDP price index) is 100 in the base year and 150 this year. Calculate the following.

(i) The inflation rate, expressed as a percentage, between base year and this year.

It should be clear that inflation increased by 50%. I don't know how to say this differently or better or clearer. Someone should help me.

(ii) This years real GDP.

So, if they had gave us base year prices and another years quantity, we would have used this formula.

but they didn't so,

We have to understand that Real GDP means taking into account the level of inflation. Prices have risen by 50% this year.

It is easy to think that since prices rose by 50% that we should just half the 6000 and say that the real GDP is 3000 (and that would be incorrect)

BUT, recognise that $4000 x 50% rise in prices would be, $4000 x .5 = $2000 and $2000 + $4000 = $6000.

(C) Since the base year, workers have received a 20% increase in their nominal wages. If workers face the same inflation rate as was calculated in (b) (ii) (50%), what has happened to real wages? Explain.

If workers get a 20% raise but prices of all the things they buy rise to 50%, then their real wages have dropped by 30%. Remember that real wages take into account inflation.

from the cheat sheet.

Real Wages (Purchasing Power) post

(D) If the GDP deflator in Gala Land increases unexpectedly, would a borrower with a fixed interest rate loan be better or worse off? Explain.

If the GDP deflator increases then inflation has increased. A borrower would be paying back money that is able to purchase less goods, therefore the borrower would be better off. You bought a good that would now, cost you, significantly more money.

Friday, October 28, 2016

2007 Macroeconomics FRQ#3

2007 Macroeconomics FRQ#3

Watch me answer it here

https://youtu.be/91lo4cetSWA

(A) The value of a used textbook sold through an online auction in 2006.

Check out GDP cheat sheet, Here

Used means second hand and implies that the value of this textbook was already counted in a previous year, therefore it is not counted this year.

(B) Rent paid in 2006 by residents in an apartment building built in 2000.

Rent is payment (income earned) for the service of using someones property therefore it is counted in GDP for 2006.

(C) Commissions earned in 2006 by a stockbroker.

Commissions paid on sale (a service) of stock or bonds,,, above.

(D) The value of an automobile produced in 2006 entirely in South Korea by a firm fully owned by US citizens.

from the cheat sheet -

((Total Value of all Final goods and services produced in the US in a year))

Excludes - production outside the US even by Americans,

Wednesday, December 23, 2015

Nominal vs. Real (Wages, Income)

Nominal vs. Real (wages, income)

To understand Nominal and Real we must first understand the concepts of Inflation and Purchasing Power

Inflation is an increase in the average price level of goods and services in a nation over time.

(If the price of apples is increasing, and the reason is because of a flood or a drought, then this is not spoken of as inflation as the cause is specifically from a flood/draught) If the price of all goods in the country are rising then we have Inflation. (Often caused by increases in the supply of a country's currency)

Purchasing Power is the number of goods or services that can be purchased with a unit of currency.

Nominal wages = current wages

Nominal wages (Income) is the amount of money I am paid at a certain period of time. If I'm paid $12 an hour, then my nominal wage is $12 dollars and hour. A nominal wage is expressed in the country's currency. If apples cost $1 each, then I have the ability (purchasing power) to buy 12 apples.

Time Passes, (let's say a year) and Inflation occurs, Apples have risen in prices to $2 each.

I'm in the US and my wage is $12 an hour, that is my nominal wage (income), and the purchasing power of my nominal wage is 6 apples at a cost of $2 each. Due to inflation my hourly wage of $12 has been reduced. I use to be able to purchase 12 apples for an hour's work but now I can only buy 6. My purchasing power has been reduced by 50%.

Real Wage = (purchasing power of wages, what it will buy, nominal wages adjusted for inflation)

If your income stays the same and inflation (price level rises) occurs, then your real wage has decreases.
If your income stays the same and instead of inflation there is deflation (price level falls), then your real wage has increased.
If your income stays the same and there is no inflation, then your real wage is your nominal wage

Nominal Wages = Real Wages (if there is no inflation = 0%)

If your wage (income) is $12 an hour, and there is no inflation (price level=no change) then $12 is your real wage.

Real Wages = Nominal Wages - Inflation

If your nominal wage is $12 an hour and inflation is 50% then your real wage would be equal to $6 an hour. A 50% increase in inflation will cause ones real wage to be 50% lower than the nominal wage.

So, lets look at this 2010 problem. If the workers nominal wage increased from $10 to $12 then the wage increased by 20%. Yet, at the same time inflation (price level) increased by 10%.

So, wages increased by 20% and inflation increased by 10%.

IF you gain 20% and inflation (eats) ten of that 20%, you are left with 10%, the answer is C.