ANSWERS, SOLUTIONS, AND EXERCISES
PROBLEM SET
1 a. Counted in GDP as an increase in inventories; “I”
e. Not counted. The property itself was not produced.
f. Counted in GDP. The service provided by the real estate agent is counted as part of
“C.” (Notice that the purchase price of the property is not counted, since it is just
represents an exchange of an existing good, not something newly produced.)
1. a. The $700 per month in imputed rent on the home and the $500 in imputed rent on
the condo are irrelevant to computing the change in GDP. While these housing
units are changing hands, they are continuing to provide the same services as
b. Using the expenditure approach, GDP rises by $75 million—the value of final
sales. (Alternately, we could also use the factor payments approach, noting that the
intermediate goods cost of $10 million will create an equal amount of factor
c. As a result of your decision, you will buy $50 less in nachos for the next 9 months.
Assuming that nacho producers respond by cutting back production of nachos,
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198 Instructor’s Manual for Economics: Principles and Applications, 6e
d. The lottery winnings are a transfer payment by the government; they are not
included in GDP because nothing is produced. However, there is a $10,000
e. GDP rises by the full value of the CDs produced, or $15 100,000 = $1,500,000.
2. Employed = 4 million. Unemployed = 1 million. Labor Force = 4 million + 1
3. Based on Figure 7, the unemployment rate not including involuntary part-time
workers would have been (14.0)/(14 + 139) = .1215 or 12.2%. Counting half the 8.8
4. a. The unemployment rate would have been (7.4 million + 451,000)/(142.8 million +
b. The unemployment rate would have been (7.4 million + 4.8 million)/(142.8
5. You should explain to her that the money she spent showed up as part of
consumption spending, which caused consumption spending to overstate production
6. Real GDP will be unchanged. The consumption (C ) component falls by $20 billion
but the $20 billion of consumer goods that are produced but not sold are included –
b. There are 48,140 people in Ziponia’s labor force.
d. The missing 1800 citizens (= 60,000 – 9,000 – 600 – 60 – 200 – 46,000 – 2,140 –
e. 11,860 (including those under 16, and those over 16 who are either in the military
Chapter 18 Production, Income, and Employment 199
8. a. The frictionally unemployed included the recent college graduates, the recent high
school graduates, the retirees who decided to return to the work force, and the
mothers and fathers who had stayed at home to raise their children but who
recently decided to reenter the work force (504 people). The seasonally
unemployed included the ski resort employees who lost their winter jobs but
b. The frictional unemployment rate is (110 + 200 + 32 + 143 + 19)/48140 = 1.05%.
The seasonal unemployment rate is (54 + 394)/48140 = 0.9%. The structural
9. a. The effect of capital destruction was 0.1 x $20.1 billion = $2.01 billion in lost
b. Before the attacks, Manhattan’s share of U.S. GDP would have been .015 x $10
trillion = $150 billion. If the disruption caused a loss of half Manhattan’s output
For the quarter, U.S. GDP would have been approximately $10 trillion/4 = $2.5
c. For the entire year, the effect of disruption would have been $2.88 billion/$10
10. a. Private investment in 2010 would increase from $1,795 billion to $2,195 billion, a
b. GDP in 2010 would increase from $14,527 billion to $14,927 billion, a 27.5%
11. a. The U.S. production decreased by 5.4%/4 = 1.35% going from the third to the
b. We can calculate this by dividing each quarterly growth rate by 4 and adding them
up, -0.7/4 + 1.5/4 – 2.7/4 – 5.4/4 = – 1.83%. Or, we could simply average the
200 Instructor’s Manual for Economics: Principles and Applications, 6e
MORE CHALLENGING
b. Consumption (C) rises by $30,000, investment (Ia) is unchanged, government
c. Japan’s GDP rises by $7000. C is unchanged, Ia is unchanged, G is unchanged,
13. All of the changes caused by the need for extra security increase the quantity of
resources needed to produce any give quantity of final goods and services.
Therefore, for a given total of resources available, real GDP will decrease. The extra
EXPERIENTIAL EXERCISES
1 Data on the Consumer Price Index are released near the middle of each month. You can
find this data at http://www.bls.gov/news.release/cpi.toc.htm . Analysis of these data
appears in the first section of the following weekday’s Wall Street Journal. Look in the
2. Have students interview 10 members of their class to determine their labor market
status—employed, unemployed, or not in the labor force. Include yourself, and then