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1. How can an increase in taxation decrease the gross domestic product measured?
2. Suppose a consumer buys 10 units of good X and 20 units of good Y every year. The following table lists the prices of goods X and Y in the years 2005-2007. Assume that these two goods constitute the typical market basket. Calculate the price indices for these years with 2005 as the base year. Comment on the inflation picture for these years.
Year
Good X
Good Y
2005
$3
$6
2006
4
7
2007
4.5
7.5
3. Using the expenditure approach, calculate GDP using the following data.
Item
Amount in dollars (billions)
Consumption
7,600
Consumption of Durable Goods
1,600
Consumption of Non Durable Goods
2,800
Consumption of Services
3,200
Investment
2,750
Fixed Investment
1,000
Government purchases of Goods & Services
1,675
Government Transfer Payments
450
Exports
750
Imports
GDP Equals
4. What is the importance of measuring per capita GDP?
5. What is the underground economy? How does it affect GDP calculations? Provide three examples of underground economy transactions.
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