ECONTWO: EXERCISE 1

_________________________
(NAME)

___________________
(SECTION)

---------------------------------------------------------------------------------------------------------------------I. Indicate to which the following items of Philippine GDP belong by writing C for personal consumption
expenditure, I for gross capital formation, G for government spending, and EX for exports. Write O if it is
excluded from current GDP.
____1. Payment by the government of social security benefits to a retired public school teacher
____2. Construction by government of a new road.
____3. Net additions to the stock of unsold shoes.
____4. Newly constructed residential homes.
____5. Purchase of new machines by a private firm from another firm in the same country.
____6. Payments you made to Davids Salon for your hair and make up.
____7. Purchases of stocks and bonds by an investor.
____8. Production and sale of marijuana
____9. Construction of a new factory by a private enterprise.
____10. Purchases of imported chocolates by consumers.
____11. Vegetables produced in the backyard and consumed by the household.
____12. Sales of second hand cars.
____13. Sales by Intel Philippines of semiconductors to the US.
____14. Sales of a San Miguel Brewery in Hong Kong to the Chinese Mainland.
____15. Purchases of Motolite batteries by Nissan Philippines.
II.. Indicate to which the following items belong by writing GDP for Gross Domestic Product, GNP for
Gross National Product. Both for an item that is included in both GDP and GNP.
____1. Salary of your Filipino teacher in Economics.
____2. Christmas bonus paid to government employees of the Philippines.
____3. Medical insurance premium paid to a Filipino insurance company in Makati.
____4. Consultancy fee of a US scientist working in the Philippines.
____5. Salaries of overseas Filipinos in Hong Kong.
____6. Profits of San Miguel in Hong Kong.
____7. Profits of US shareholders in Intel Philippines.
____8. Rental income of a Filipino who owns an apartment in the US.
____9. Rental income of a Filipino owned condominium in Vito Cruz.
____10. Salary of the Japanese president of Honda Philippines.
III. Fill in the blanks.
1. A steel company sells some steel to a bicycle company for $150. The bicycle company uses the steel to
produce a bicycle, which it sells for $250. Taken together these two transactions contribute how much to
GDP? ____________
2. A farmer grows wheat which he sells to a miller for $100. The miller turns the wheat into flour which
she sells to the baker for $150. The baker turns the wheat into bread which he sells to consumers for $180.
Consumers eat the bread. What is GDP in this economy? ________________

IV. The table below contains data for the country of Crete for the year 2010.
Total income
Household purchases of durable goods
Household purchases of nondurable goods
Household purchases of non-education services
Household purchases of education services
Household purchases of new housing
Purchases of capital equipment
Inventory changes
Purchases of new structures (buildings)
Depreciation
Local government spending on goods and services
State government spending on goods and services
Federal government spending on goods and services
Transfer payments
Foreign purchases of domestically produced goods (exports)
Domestic purchases of foreign goods (imports)

$5731
$1108
$702
$203
$302
$816
$333
$75
$267
$401
$236
$419
$1182
$707
$217
$129

1. What was Cretes GDP in 2010? _______

2. What was Cretes consumption in 2010? _____
3. What was Cretes investment in 2010? ______
4. What were Cretes government purchases in 2010? ___
5. What were Cretes net exports in 2010? ______
V. The table below contains data for the country of Batterland, which produces only waffles and
pancakes. The base year is 2009.
Year
2008
2009
2010
2011

Price of
Waffles
$2.00
$2.00
$2.00
$4.00

Quantity of
Waffles
100
120
150
180

Price of
Pancakes
$1.00
$2.00
$3.00
$3.00

Quantity of
Pancakes
100
150
200
220

1. In 2008, this country's nominal GDP was _____.

2. In 2009, this country's nominal GDP was ______.
3. In 2008, this country's real GDP was ______.
4. In 2009, this country's real GDP was _____.
5. In 2010, this country's real GDP was ______.
6. In 2011, this country's real GDP was _____.
7. In 2008, this country's GDP deflator was _____.
8. In 2009, this country's GDP deflator was _____.
9. In 2010, this country's GDP deflator was ______.
10. In 2011, this country's GDP deflator was ______.
11. From 2010 to 2011, this country's output growth rate was ______.
12. This country's inflation rate from 2008 to 2009 was ______.
13. This country's inflation rate from 2010 to 2011 was ______.
VI. The table below pertains to Napandsnack, an economy in which the typical consumers basket consists of 2
shirts and 15 hotdogs.
Year
2009
2010
2011

Price of a
Shirt
$40
$45
$50

Price of a
Hotdog
$3
$4
$3

1. If the base year is 2009, then the consumer price index was _____ in 2009,
2._____ in 2010,
3. ____ in 2011.
4. If the base year is 2009, then the economys inflation rate in 2010 is ___ percent.
5. The CPI was 96 in 1982, and the CPI was 208 in 2010. How much money would you have needed in
2010 in order to buy what you could have bought with $500 in 1982? ________
6. Janelle earned a salary of P40,000 in 1996 and P65,000 in 2006. The consumer price index was 160 in
1996 and 266 in 2006. Janelles 1996 salary in 2006 pesos is ___________.
7. The consumer price index was 225 in 2006 and 234 in 2007. The nominal interest rate during this
period was 6.5 percent. What was the real interest rate during this period? _________
8. If Philippine real GDP grows by 7% while its population grows by 2%, then real per capita income will
grow by ________%
9. and its per capita income using the rule of 70 will double in _______ years.
10. In one day Madison Laundry washed 4,000 pounds of laundry with 5 workers who each worked 8
hours. What was its productivity per labor hour worked? ____________
11. Stock in Creole Cuisine Restaurants is selling at $25 per share. Creole Cuisine had earnings of $5 a
share and a dividend yield of 5 percent. The dividend is _________
12. while the P/E ratio is ___________.

VII. Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500 consumption
equals 7,500 and government purchases equal 2,000.
1. Private saving = ______
2. Public saving = _____
3. National saving = _______
Assume the following information for an imaginary, closed economy.

GDP = $120,000; consumption = $70,000; private saving = $9,000;

national saving = $12,000.
4. For this economy, investment amounts to ________
5. The government is running a budget (deficit, surplus) _______
6. equal to _________
7. For this economy, government purchases amount to __________.
8. For this economy, taxes amount to $____________.
VIII.
1. Suppose the market for loanable funds is in equilibrium and the government raises the tax on the
interest earned by savers. This will cause (demand, supply) __________ for loanable funds to
(increase, decrease)____________ so that the (demand, supply) __________ curve shifts to the (left,
right) __________. In the new equilibrium, the real interest rate is (higher, lower) _____________
and the equilibrium quantity of loanable funds (increases, decreases) ______________. In the new
equilibrium saving is (greater than, equal to, less than) _____________ investment.
2. Suppose the market for loanable funds is in equilibrium and the government removes the tax incentives
it used to give firms that invest.. This will cause (demand, supply) __________ for loanable funds to
(increase, decrease)____________ so that the (demand, supply) __________ curve shifts to the (left,
right) __________. In the new equilibrium, the real interest rate is (higher, lower) _____________
and the equilibrium quantity of loanable funds (increases, decreases) ______________..
3. Suppose the government budget is initially balanced and the market for loanable funds is in
equilibrium when the government reduces its spending and incurs a budget surplus. This will cause
(demand, supply) __________ for loanable funds to (increase, decrease)____________ so that the
(demand, supply) __________ curve shifts to the (left, right) __________. In the new equilibrium,
the real interest rate is (higher, lower) _____________ and the equilibrium quantity of loanable
funds (increases, decreases) ______________. In the new equilibrium private investment is (higher,
lower) ______________.