1.The following transactions took place in Legoland last year:
Item Billions of dollars
Wages paid to labour 750
Consumption expenditure 600
Government transfer payments 50
Indirect taxes less subsidies 0
Firm's profits 200
Net Investment 200
Government expenditure 200
Private Savings 300
1.1 Calculate Legoland's GDP using the expenditure approach and the factor incomes approach.
1.2 Calculate leakages from and injections into the circular flow of income and expenditure.
1.3 Calculate the net domestic product.
1.4 How much are government saving and national saving?
1.5 If there is a purchase of one corporation by another corporation by swapping shares worth 1 billion dollars, how would it affect the GDP figure?
2. A typical family living on Sandy Island consumes only orange juice, apples and cloth. In the base year, this family spent $40 on orange juice, $45 on apples, and $25 on cloth. Prices in the base year were $4 per liter of orange juice, $3 for each apple and $5 per meter of cloth. In the current year, orange juice costs $3 a liter, apples cost $4 each and cloth costs $7 a meter.
2.1 Calculate the Consumer Price Index in the current year.
2.2 What is the inflation rate between the base year and the current year?
3. An economy has the following real GDP and nominal GDP in 1993, 1994 and 1995:
Year Real GDP ($ billion) Nominal GDP ($ billion)
1993 1000 1000
1994 1050 1200
1995 1200 1500
3.1 What were the GDP deflators in 1994 and 1995?
3.2 What is the inflation rate as measured by the GDP deflator between 1993 and 1995?
National Income - Discussion Topic Questions:
(I) Discuss whether each of the following activities is included in GDP:
(a) sew your own dress
(b) purchase a frozen meal from the supermarket
(c) rent a car
(d) add more business inventories
(e) buy a second-hand TV
(II) Discuss the effect(s) of each of the following reported transactions on this year's GDP:
(a) Japanese companies bought US $1 billion worth of properties in Hong Kong in the first half of this year.
(b) Exports to the United States increased 10% this year.
(c) Government cut back expenditure on housing subsidies this year.