Operation Management

4 | measuring gdp and economic growth** |

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Chapter

Problems and Applications

1. Classify each of the following items as a final good or service or an intermediate good or service and identify which is a component of consumption expenditure, investment, or government expenditure on goods and services:

* Banking services bought by a student.

* New cars bought by Hertz, the car rental firm.

* Newsprint bought by USA Today.

* The purchase of a new limo for the president.

* New house bought by Al Gore.

2. The firm that printed this textbook bought the paper from XYZ Paper Mills. Was this purchase of paper part of GDP? If not, how does the value of the paper get counted in GDP?

Use the following figure, which illustrates the circular flow model, to work Problems 3 and 4.

3. During 2008, in an economy

* Flow B was $9 trillion,

* Flow C was $2 trillion,

* Flow D was $3 trillion, and

* Flow E was –$0.7 trillion.

Name the flows and calculate the value of

Flow A is aggregate income; Flow B is consumption expenditure; Flow C is government expenditure; Flow D is investment; Flow E is net exports.

a. Aggregate income.

b. GDP.

4. During 2009, flow A was $13.0 trillion, flow B was $9.1 trillion, flow D was $3.3 trillion, and flow E was –$0.8 trillion. Calculate the 2009 values of

a. GDP.

b. Government expenditure.

5. Use the following data to calculate aggregate expenditure and imports of goods and services.

* Government expenditure: $20 billion

* Aggregate income: $100 billion

* Consumption expenditure: $67 billion

* Investment: $21 billion

* Exports of goods and services: $30 billion

6. U.S. Economy Shrinks Modestly

GDP fell 1 percent as businesses cut investment by 8.9 percent, consumers cut spending by 1.2 percent, purchases of new houses fell 38 percent, and exports fell 29.9...