Chapter 8 Key Problem

Chapter 8

Key Question 2

Suppose an economy’s real GDP is $30,000 in a year and $31,200 in year 2. What is the growth rate of its real GDP? Assume that population is 100 in year 1 and 102 in year 2. What is the growth rate of GDP per capita?

The growth rate of its real GDP is [($31,200-30,000)/$30,000]*100= 0.04 =4%

The growth rate of GDP per capita is (31,200/102-30000/100)/(31200/102)= 0.01923 = 1.92%

Key Question 11

If the CPI was 110 last year and is 121 this year, what is the year’s rate of inflation? What is the “rule of 70”? How long would it take for the price level to double if inflation persisted at (a) 2, (b) 5, and (c) 10 percent per year?

The year rate of inflation is (121-110)/110*100 = 0.1 = 10%

The “rule of 70”inflation would double the price level in years if given its annual percentage (70/annual percentage rate).

(a) If price level persisted at 2 it would take 35 years = 70/2.

(b) If price level persisted at 5 it would take 14 years = 70/5.

(c) If price level persisted at 10 it would take 7 years =70/7.

Chapter 3

E3.6. LO 3

ROI analysis using DuPont model.

Firm D

1. Firm D has net income of $27,900, sales of $930,000, and average total assets of $465,000. Calculate the firm's margin, turnover, and ROI.

Margin $27,900/$930,000 = 0.03 = 3% (Net Income/Sales)

Turnover $930,000/$465,000= 2 (Sales/Total Assets)

ROI ($27,900/$930,000)*($930,000/$465,000) = 0.06 (Net Income/Sale)*Sales/Total Assets)

2. Firm E has net income of $75,000, sales of $1,250,000, and ROI of 15%. Calculate the firm's turnover and average total assets.

Margin $75,000/$1,250,000= 0.06 = 6% (Net income/Sales)

Turnover 0.15/0.06 = 2.5 (ROI/Margin)

Average Total Assets $1,250,000/2.5= $500,000 (Sales/Turnover)

3. Firm F has ROI of 12.6%, average total assets of $1,730,159, and turnover of 1.4. Calculate the firm's sales, margin, and net income.

Sales $1,730,159*0.126= $218,000 (Total/ROI)

Margin 0.126/1.4= 9% (ROI/Turnover)

Net Income...