# inter macro homework 1 Page 1 of 4

January 24, 2016

inter macro homework 1 Page 1 of 4

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inter macro homework 1 Page 2 of 4
1. The following transactions occurred in a given year. Firm A manufactures leather using a
factory valued at \$20,000. Suppose Firm A produced \$2,000 worth of leather and incurred
the following costs: \$1,000 for the salaries of workers, \$100 for interest payments on a
bank loan, and taxes of \$200. Firm A sold all of its leather to Firm B, which is a
manufacturer of luxury bags. Suppose Firm B produced four bags at a cost of \$800 each.
The cost of each bag consisted of paying for \$500 worth of raw materials, paying for the
salaries of workers for \$200, and \$100 in taxes. Firm B has a factory valued at \$30,000.
Firm B sold to the public three of its four bags for \$1,000 each. Calculate the contribution
to GDP using the following:
1) Production approach.
2) Income approach.
3) Expenditure approach.
inter macro homework 1 Page 3 of 4
2. Consider a two-good (A and B), two-period (year 1 and year 2) economy. In year 1, the
economy produced 10 units of A at a per unit price of \$1 and 5 units of B at a per unit price
of \$2. In year 2, the economy produced 15 units of A at a per unit price of \$1 and 5 units
of B at a per unit price of \$3. Calculate real GDP for years 1 and 2 using the following
methods:
1) Laspeyres.
2) Paasche.
3) Fisher.
4) Calculate and compare the growth rate of real GDP using the three approaches.
inter macro homework 1 Page 4 of 4
3. Mankiw, page 42, question 2. A farmer grows a bushel of wheat and sells it to a miller for
\$1. The miller turns the wheat into flour and then sells the flour to a baker for \$3. The
baker uses the flour to make bread and sells the bread to an engineer for \$6. The engineer
1) What is the value added by each person?
2) What is the breadâ€™s contribution to GDP?
4. Mankiw, page 42, question 3. Suppose a woman marries her butler. After they are married,
her husband continues to wait on her as before, and she continues to support him as before
(but as a husband rather than an employee).
1) How does the marriage affect GDP? (Note: That is, the butler is treated as a husband,
not as an employee)
2) How should it affect GDP? (Note: That is, the butler is treated as an employee, not as
a husband)

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