Expenditure and product approaches

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1. The information requested in this question can be found on the website of the Bureau of Economic Analysis (www.bea.gov) and the website of the Bureau of Labor Statistics (www.bls.gov).

(a) What was the value of GDP (not Real GDP) in the 2nd quarter of 2015? For the same quarter, what was the value for the 5 main expenditure components of GDP (recall that from an expenditure perspective GDP can be expressed as GDP = C + I + G + X - M)? Which Table did you use for your answers (Table number)?

(b) What was the growth rate of Real GDP in the 2nd quarter of 2015? Which Table did you use for your answers (Table number)?

(c) What was the contribution of each expenditure component to real GDP growth in the 2nd quarter of 2015? Which Table did you use for your answers (Table number)?

(d) Which measures (indices) of prices are reported in the "Latest Numbers" section of the main webpage of the Bureau of Labor Statistics?

(e) Consider the Consumer Price Index (CPI). The website reports several different versions of the CPI, let us focus on the following: CPI-U, US City Average, All Items, NSA (Not Seasonally Adjusted). What was the annual inflation rate according to this measure in January 2010 and how does it compare to the annual inflation rate in January 2015?

(f) What was the (seasonally adjusted) unemployment rate in October 2009? Has it been rising or falling since then? Provide the corresponding unemployment rates for October 2010, 2011, 2012, 2013 and 2014 to support your answer.

(g) What were the annual averages for the unemployment rate from 2009 until now?

(h) During the same period, i.e. from October 2009 to October 2014, what has happened to the Civilian Labor force participation rate? Provide numbers for this rate in October (seasonally adjusted) for each year.

2. Consider an economy with only two businesses, called OrangeInc and JuiceInc. OrangeInc owns and operates orange groves. It sells some of its oranges directly to the public, making $10,000. It sells the rest of its oranges to JuiceInc, making $25,000. JuiceInc uses the oranges it acquires to produce and sell orange juice to the public. The total revenue of JuiceInc is $40,000. What is the value added by each business? Compute GDP using the Product Approach and using the Expenditure Approach.

3. Consider an economy consisting of only two companies:Oil Inc. and Electricity Inc. Electricity Inc. buys $400 worth of oil from Oil Inc and uses it to produce electricity. It is owned by US nationals, its plant is based in the US and its workers are all US nationals. It receives $1000 in revenue from the sale of electricity to the public (domestic) and has to pay $500 in wages. Oil Inc is owned by US nationals and it operates two different oil extraction plants, one at home and the other in Saudi Arabia. The domestic plant pays $400 in wages to domestic workers and produces $2000 worth of oil. Out of this production, $1600 is sold directly to the public domestically and $400 is sold to Electricity Inc. The foreign plant employs only foreigners. Its total wage bill is $300. It produces $1300 worth of oil out of which $500 is sent back to the US and sold to the public and the remaining $800 is sold in Saudi Arabia.

(a) Compute US GDP using the income, expenditure and product approaches. Clearly show and explain all steps used for each approach. In particular, for each item that you add up, specify under which specific category it falls.

(b) Redo question (a) assuming that all the workers in this economy are foreigners. Point out what changes in each approach compared to question (a). How is the value of GDP affected?

Reference no: EM13841712

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