Iszaia Cordero
Econ 2
Professor McMurran
6 March 2017 Homework Section 2
1.(2 points)
Many of the expansions in the Twentieth Century occurred during wars. Why do you think this is true?
For starters in every war export rates go out the roof and causes expansion. Also Most wars were
fought for economic disputes or reasons. The winner usually of those wars usually tended to gain
access to the loser’s capital such as raw materials, land, money, and trade routes.
2. (4 points)
Assume that the demand for autoworkers declines significantly due to a decrease in demand for new
automobiles.
(a) According to Classical Economic Theory, what will be the most likely impact on unemployment due
to this occurrence in the automobile market? Please explain your answer.
Unemployment rates would rise significantly because we wouldn’t see the government helping out
the automobile market in any way, and since it plays such a huge role in the market because it
makes a lot of money and demands lots of jobs such as; mechanics, car salesmen, car washes, car
porters, etc.
(b) According to Keynesian Economic Theory, what will be the most likely impact on unemployment due
to this occurrence in the automobile market? Please explain your answer.
The Unemployment rate would only lower for a short period of time because the government would
lower taxes and generate more money and the demand for automobiles would go right back up
because everything is short term.
3. (8 points) Below are some economic data for Utopian (a nation that calculates Gross Domestic Product
the same way that the USA does.
Structures = $300 billion
Sales of Used Goods = $200 billion
Personal Consumption Expenditures = $5,000 billion
Consumption of Fixed Capital = $2,000 billion
Gross Private Domestic Investment = $3,000 billion
Exports = $700 billion
Personal Income Taxes = $2,000 billion
Net Private Domestic Investment = $1,000
Social Security Benefits = $700 billion
Imports = $400 billion
Government Consumption Expenditures and Government Gross Investment = $2,500 billion
Government Transfer Payments = $900 billion
Corporate Gross Profits = $500 billion
Corporate Dividends Paid = $200 billion
Indirect Business Taxes = $300 billion
Net Personal interest income (paid to households) = $25 billion
Income earned abroad by Utopian firms and residents = $200 billion
Income earned in Utopian by foreign firms and residents = $120 billion
(a) Using the data above, calculate Utopian’s Gross Domestic Product. Show how you got your answer for
Utopian’s Gross Domestic Product. 507 Consumption+503 gross investment+ 305,500 government
investment+ 1.6 trillion government spending +(700 exports-400 imports) 3.2 trillion
(b) If the population of Utopian is 50 million people, then calculate the nation’s per capita GDP. Please
show how you got your answer.
3.2 trillion/50 million= 64,000
(c) If prices were to double overnight for all goods and services, please explain what would happen to
Real GDP and to Nominal GDP.
GDP would significantly rise and the nations money would increase as well.
4. (5 points) For each of the following activities, please state “yes” if this activity should be included in
the year 20016 Gross Domestic Product for the United States or “no” if this activity should not be
included in the year 20016 Gross Domestic Product for the United States. For each of your answers
