FIRST TAKE-HOME EXERCISE SET [9 Points Total] L. Tesfatsion DUE DATE: Tuesday, Jan 30, 9:30 A.M. Econ 302/Spring 96 **PLEASE NOTE: Exercise answers are to be turned in at the #beginning# of class on the due date. Late assignments will not be accepted---no exceptions! Students are encouraged to work #together# on these and all future exercise questions. However, each student is required #separately# to pass in an answer sheet to minimize the danger of "free-riding" and consequent disasters on the midterm and final exams! --------------------------------- --------------------------------- EXERCISE 1 [3 Points]: Hall and Taylor, Chapter 1, MACROSOLVE Exercise Number 1, page 30. (Experience using the PLOT option.) --------------------------------- --------------------------------- BASIC REFERENCES FOR NEXT TWO EXERCISES: HT Chapter 2, Lecture Notes HT2 EXERCISE 2 [3 Points]: Suppose you are given the following data on an economy for year T, all in nominal (current dollar) values: Gross domestic product = $1000 Government purchases of final goods and services = $200 Government saving = - $50 Private saving = $250 Gross investment = $150 Net factor payments and transfers from ROW = $0 Calculate the nominal values for (a) consumption; (b) disposable income; and (c) net exports. Show your work. [Hint: Use the national income accounting identity and the definitions for the terms listed on the left, plus a bit of algebra.] EXERCISE 3 [3 Points]: Consider a closed economy E consisting of a fisherman named George (who fishes within the boundaries of E), a fishing boat-owner Fred who rents his boat to George, a group of laborers (George's boat crew members), and a government. Thus, George is the only producer of a final good or service. Suppose that George has the following expenses during year T: Boat rental: $15,000; and crew wages: $20,000. With his boat and crew, George catches 25,000 fish during year T. He sells all of the fish at the price of $2.00 each, so that his total receipts are $50,000. Receipts of $50,000 and expenses of $35,000 leave George with $15,000 profit. He then pays $5,000 to the government in taxes, leaving an after-tax profit of $10,000. Your goal is to find the GDP, measured in dollars, for this economy for year T. Show, numerically, how the spending approach, the product (value added) approach, and the total earned income approach provide three equivalent ways of calculating this GDP. Start by providing a verbal definition of each approach, and justify your calculations.