Question

10. Challenge Problem. Following are data relating to a nation's operations last year. Capital consumption allowances $150 million Undistributed corporate profits 40 million Personal consumption expenditures 450 million Personal savings 50 million Corporate inventory valuation adjustment 25 million Federal government deficit -30 million Government purchases of goods and services 10 million State and local governments surplus 1 million Net exports of goods and services -2 million Gross private domestic investment 200 million a. Determine the nation's gross domestic product (GDP). b. How would your answer change in (a) if exports of goods and services were $5 million and imports were 80 percent of exports? c. Show how the GDP in (a) would change under the following three scenarios: Scenario 1 (probability of .20) that the GDP components would be 120 percent of their values in (a). Scenario 2 (probability of .50) that the GDP component values used in (a) would occur. Scenario 3 (probability of .30) that the GDP components would be 75 percent of their values in (a). d. Determine the nation's gross savings last year. e. Show how your answer in (d) would change if each account simultaneously increases by 10 percent f. Show how your answer in (d) would change if each account simultaneously decreases by 10 percent. Show how your answer in (d) would have changed if Capital consumption allowances had been 10 percent less and personal consumption expenditures had been $400 million.

Answer 1

10) A)GDP=C+I+G+NX=450+200+10-2=658million

B)Then ,net export( NX)=5-0.8*5=0.2*5=1 million

GDP=450+200+10+1=661 million

C)GDP=0.2*1.2*658+0.5*658+0.3*0.75*658

=658(0.2*1.2+0.5+0.3*0.75)=658*0.965=634.97

D) Federal deficit=-30

Federal deficit=G-T=10-T

T=10+30=40 million

Gross private saving=GDP-C-T=658-450-40=168

Public saving=T-G=40-10=30

Gross national saving= gross private saving+ public saving=168+30=198