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ECO 202/Oct 25th 2022
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MACROECONOMIC (ECO 202) ASSIGNMENT
LECTURE : LUTHFI HAMIDI, PhD.
STUDENT NAME : CITRA WIDURI
STUDENT ID : 3212210006
NO. Question Answer
1. During a given year, the following activitiesCompany 1 : Silver Mining Company
occur: Revenue from sales: $ 300.000,-
i. A silver mining company pays its Expenses
workers $200,000 to mine 75 pounds of Wages : $ 200.000,-
Profit : $ 100.000,-
silver. The silver is then sold to a
jewellery manufacturer for $300,000.
Company 2 : Jewellery Manufacturer
ii. The jewellery manufacturer pays its Revenue from sales: $ 1.000.000,-
workers $250,000 to make silver Expenses : $ 550.000,-
necklaces, which the manufacturer sells Wages : $ 250.000,-
directly to consumers for $1,000,000. Silver Purchase : $ 300.000,-
Profit : $ 450.000,-
1.a Using the production-of-final-goods GDP by the production of final goods approach is
approach, what is GDP in this economy? calculated by the revenue from sales of Company 2: The
Jewellery Manufacturer = $ 1.000.000,-
1.b What is the value added at each stage of Value added at
production? Using the value-added Stage 1 : Silver Mining Company
approach, what is GDP? No intermediate goods
Value added = value of silver = revenue from sales of the
silver = $ 300.000,-
Stage 2: Jewellery Manufacturer
Value of intermediate goods = value of the silver from
Silver Mining Company = $300.000,-
Value of final goods= revenue from sales of the silver
necklaces = $1.000.000,-
Added value = Value of final goods – value of intermediate
goods = $1.000.000 - $300.000 = $700.000
The GDP based on Value-added approach:
GDP = Value of intermediate goods + added value =
$300.000 + $700.000 = $1.000.000
1.c What are the total wages and profits From Company 1:
earned? Using the income approach, what Labor income = wages = $ 200.000
is GDP? Capital income = profit = $ 100.000
Total income = labor income + capital income = $200.000
+ $100.000 = $300.000
From Company 2:
Labor income = wages = $ 250.000
Capital income = profit = $ 450.000
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NO. Question Answer
Total income = labor income + capital income = $250.000
+ $450.000 = $700.000
The GDP based on Total Sum of Income approach:
GDP = Total income company 1 + total income company 2
= $300.000 + $700.000 = $1.000.000,-
2. An economy produces three goods: cars, We calculate the continuing tabulation of nominal and
computers, and oranges. Quantities and real GDP as below:
prices per unit for years 2009 and 2010 are
as follows:
2.a What is nominal GDP in 2009 and in 2010? From the calculation above,
By what percentage does nominal GDP Nominal GDP 2009 = $ 25.000
change from 2009 to 2010? Nominal GDP 2010 = $ 40.000
The percentage of change :
($40.000 - $25.000)/$25.000 x 100%
= 60% → means the nominal GDP is increasing 60% from
2009 to 2010
2.b Using the prices for 2009 as the set of From the calculation above,
common prices, what is real GDP in 2009 Real GDP 2009 = $ 25.000
and in 2010? By what percentage does real Real GDP 2010 = $ 31.000
GDP change from 2009 to 2010? The percentage of change :
($31.000 - $25.000)/$25.000 x 100%
= 24% → means the real GDP (relative to the common
price of 2009) is increasing 24% from 2009 to 2010
2.c Using the prices for 2010 as the set of From the calculation above,
common prices, what is real GDP in 2009 Real GDP 2009 = $ 33.000
and in 2010? By what percentage does real Real GDP 2010 = $ 40.000
GDP change from 2009 to 2010? The percentage of change :
($40.000 - $33.000)/$33.000 x 100%
= 21.21% → means the real GDP (relative to the common
price of 2010) is increasing 21.21% from 2009 to 2010
2.d Why are the two output growth rates The two output growth is different because we use
constructed in (b) and (c) different? Which different baselines for constant price.
one is correct? Explain your answer. The purpose of calculating real GDP is because the
nominal GDP has limitations to calculating the economic
scale of a country on a year-to-year time series basis. Say
that Nominal GDP is the sum of the quantities of final
goods produced times their current price. This definition
makes clear that nominal GDP increases over time for two
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ECO 202/Oct 25th 2022
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NO. Question Answer
reasons: First, the production of most goods increases
over time. Second, the price of most goods also increases
over time. If our goal is to measure production and its
change over time, we need to eliminate the effect of
increasing prices on our measure of GDP. That’s why real
GDP is constructed as the sum of the quantities of final
goods times constant (rather than current) prices.
According to our point of view, we can choose the
constant prices to use. So both of b and c are correct.
3. Consider the economy described in We’re still using the calculation below:
Problem 2.
3.a Use the prices for 2009 as the set of Base year : 2009
common prices to compute real GDP in Nominal GDP 2009 = $25.000
2009 and in 2010. Compute the GDP Real GDP 2009 = $25.000
deflator for 2009 and for 2010, and GDP Deflator 2009 = 1
compute the rate of inflation from 2009 to
Nominal GDP 2010 = $40.000
2010.
Real GDP 2010 = $31.000
GDP Deflator 2010 = $40.000/$31.000 = 1.29
Inflation rate =[GDP Deflator 2010 – GDP Deflator
2009]x100% = [1.29 – 1] x 100%
The inflation rate = 29%
3.b Use the prices for 2010 as the set of Base year : 2010
common prices to compute real GDP in Nominal GDP 2009 = $25.000
2009 and in 2010. Compute the GDP Real GDP 2009 = $33.000
deflator for 2009 and for 2010 and GDP Deflator 2009 = 0.76
compute the rate of inflation from 2009 to
Nominal GDP 2010 = $40.000
2010.
Real GDP 2010 = $40.000
GDP Deflator 2010 = 1
Inflation rate =[GDP Deflator 2010 – GDP Deflator
2009]x100% = [1 – 0.76] x 100%
The inflation rate = 24%
4. Suppose the economy is characterized by From the C & YD equations we will get:
the following behavioural equations: C = c0 + c1YD
C = c0 + c1YD C = c0 + c1(Y – T)
YD = Y – T C = c0 + c1Y – c1T
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NO. Question Answer
I = b0 + b1Y
Government spending and taxes are
constant. Note that investment now
increases with output.
4.a Solve for equilibrium output The Equilibrium output of Y would be:
Y=C+I+G
Y = c0 + c1Y – c1T + b0 + b1Y + G
Y - c1Y – b1Y = c0 + b0 – c1T + G
Y (1 - c1 – b1) = c0 + b0 – c1T + G
𝑐0+𝑏0−𝑐1𝑇+𝐺
𝑌= 1−𝑐1−𝑏1
4.b What is the value of the multiplier? How The equation above can be written as:
does the relation between investment and 1
𝑌= (𝑐0 + 𝑏0 − 𝑐1𝑇 + 𝐺)
output affect the value of the multiplier? (1 − 𝑐1 − 𝑏1)
1
For the multiplier to be positive, what Where the is the multiplier
(1−𝑐1−𝑏1)
condition must (c1 + b1) satisfy? Explain The relationship of investment and output to the
your answers. multiplier is represented by b1:
I = b0 + b1Y
I -b0 = b1Y
(I-b0)/Y = b1,
As long as 0≤b1<1 and 0≤(c1+b1)<1 the multiplier will be
positive and affected positively by the investment.
As the investment increase, the multiplier also be greater.
So does the output. Since Y is positively connected with I,
if the output increase, the investment also increasing and
affected to the greater multiplier.
For the multiplier to be positive (c1+b1) should be less
than 1 ,
1
If > 0 , then 1 > 1 – c1 – b1 >0 ,
(1−𝑐1−𝑏1)
or can be written : 1>1 – (c1+b1) >0
If 1 > 1 – (c1+b1)>0 , then 1> c1+b1>0,
On the contrary, if c1+b1 is greater than 1, the multiplier
will resulting negative value, and if c1+b1 is less than
zero/ negative, the multiplier will resulting fraction which
is lead to smaller outputs. This condition is having none
multiplier effect.
That is why for the mutiplier to be positive, c1+b1 must
satisfy the condition of less than 1 and greater than 0.
