Econ 104 Macro
Problem Set #3
Answer Key
1. Real GDP is a measure of a country’s total output of final market goods and services
produced during a given year. Nominal GDP is the dollar value of a country’s output
of final market goods and services produced during a given year. Real GDP is
nominal GDP corrected for inflation.
GDP includes goods and services produced within the geographical confines of a
country. GNP includes goods and services produced by a country’s citizens (or
nationals) regardless of where they are produced.
2. See class notes. Or find this information on the web.
3. Equilibrium: P*=$850, Q*=1200
4. GDP may not be a suitable measure of economic well being of a nation because:
a.) Only market activity is included in GDP.
b.) GDP places no value on leisure.
c.) “bads” as well as goods get counted in GDP.
d.) Ecological costs are not netted out of GDP.
5. a.) Increase GDP by $10,000.
b.) Increase GDP by $3,000.
c.) No change in GDP.
d.) No change in GDP.
e.) Increase GDP by $250,000.
f.) No change in GDP.
g.) No change in GDP.
h.) No change in GDP.
i.) Increase GDP by $50.
6. A business cycle is the up and down movements in economic activity measured by
fluctuations in RGDP.
See class notes for the four phases of a business cycle (describe each):
contraction, trough, expansion, peak.
7. Not on exam 2.
8. (all values are in billions of dollars)
a.) RGDP = NGDP/(GDP deflator)
RGDP = $2964.86 in 1971
RGDP = $3841.57 in 1981
RGDP = $4862.36 in 1991
