AP Econ GDP Price Indexes, National Income and Net Domestic Product Page 122 of New AP Book.

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AP Econ GDP Price Indexes, National Income and Net Domestic Product Page 122 of New AP Book

Problem 8 Use data pg 122 Determine GDP by both methods then NDP Look at Data pg 122 GDP Method GDP=C+I+G+Net Exports (Exports-Imports) C=245 I=Net Private Domestic Inv + Detpreciation =33+27 G=72 Net Exports= 11 245+60+72+11=\$388

Problem 8 Use data pg 122 Determine GDP by both methods then NDP Income Approach (Add together) GDP = Compensation of employees + Rents + Interest + Proprietors income + Corporate profits (includes Corporate income taxes + dividends + undistributed corporate profits) + Indirect business taxes* + Depreciation (consumption of fixed capital)* + Net foreign factor income *Note: Two adjustments must be made to get GDP: *Indirect taxes minus subsidies are added to get from factor cost to market prices. *Depreciation is added above to get from Net Domestic Product to Gross Domestic Product

Problem 8 Wages, salary, supplemental=\$223 Rents=\$14 Interest=13 Proprietor Income=33 Corporate Profits= Sum of next three Corporate Taxes=\$19 Dividends= \$16 Und. Corp Profits=21 Indirect Business Taxes-Subsidies =\$18 Depreciation of Capital=\$27 Net Foreign Factor Income=\$4 =\$388

NDP Net Domestic ProductGDP minus Depreciation 388-27 =361

National Income NDP minus statistical discrepancy and also net foreign factor income=NI 361-0-4 =357

Problem 11 Question: Suppose in 1984 total output of a single good economy was 7000 buckets of chicken. Also price of each bucket was \$10. Also assume that 22,000 buckets of chicken were produced at \$16 in 2000. Determine GDP price index for 1984 use 2000 as base year What % did inflation rise between 1984 and 2000? Use 2 methods listed in Table 6.6 to determine GDP in 1984 and 2000

Determine GDP price index for 1984 use 2000 as base year Base year quantity Base year price Base year expenditure Current year price Current year expenditure Chicken22,000\$1622,000X16= \$352,000 (Nominal GDP for the year) 1022,000X10= \$220,000 ProcessBase year index is 100 (\$352,000 divided by \$352,000)*100 Index # for 1984 is 62.5 (\$220,000 divided by \$352,000)*100

What % did inflation rise between 1984 and 2000? Easy! Since you are working with the base year you only need to know the difference between the two numbers! 100-62.5=37.5%

Use 2 methods listed in Table 6.6 to determine GDP in 1984 and 2000 Method One 1. Find Nominal GDP for the year 1984 Nominal GDP= \$10 per bucket*7000 Buckets= \$70,000 2. Compute GDP price index (62.5) 3. Real GDP? Divide each years Nominal GDP by that year price index \$70,000/.625=\$112,000 2000 GDP Real and Nominal Same since it is base \$352,000

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