Intermediate Macroeconomics Assignment-

Q1. The following table shows various stages by which wood is turned into wallpapers as the final product. The numbers are all in million dollars.

Forest Company -

Sales of wood: $ 1800

Expenses: 600

Rent paid: 50

Wages paid: 550

Profits: $ 1200

Saw Mill -

Sales of wood chips: $ 4200

Expenses: 2800

Purchase of wood: 1800

Wages paid: 400

Interest paid: 600

Profits: 1400

Pulp & Paper Mill -

Sales of paper: $ 6500

 Expenses: 5000

 Purchase of wood chips: 4200

Interest paid: 500

Wages paid: 300

Profits: $ 1500

Wallpaper Company:

Sales of wallpapers: $8000

Expenses: 7300

Purchase of paper: 6500

Interest paid: 200

Wages paid: 600

Profits: $ 700

Assuming that wallpaper is the only final good in the economy, compute the value of GDP for this economy using each of the final good, value-added, and income approaches. Compare your results from the three approaches.

Q2. The economy of Fruitland produces four types of fruit: apples, oranges, pears and grapes. The following table contains the production and price data for two consecutive years.

a) What are the values of nominal and real GDP in each year?

b) How much did nominal GDP grow between the last year and the current year?

c) How much did the real GDP grow between the last year and the current year?

d) What was the percentage change in the overall price level (measured by the GDP deflator) between the last and the current year?

Q3. A closed economy is characterized by the following information:

Subsistence consumption: $ 40 million

Propensity to consume: 0.75

Investment: $ 300 million

Government Purchases: $ 450 million

Taxes: $ 400 million

Find out each of the following values:

a) Equilibrium GDP (Y)

b) Disposable income (Y_D)

c) Consumption spending (C)

d) Private Saving

e) Public Saving

f) The multiplier

Q4. Show the equilibrium in the above economy (as described in Question3) on a properly labelled diagram using Demand and Output lines. If the economy's current production is at $1800 million, how would you characterize the situation in the economy? What needs to happen for this economy to be in equilibrium?

Q5. Suppose the money demand is given by M^d = $Y(0.25 - i) and $Y = $1000.

a) What is the interest rate if M^S = $200?

b) If the Central Bank wanted to reduce the interest rate to 3%, how much should it increase the money supply?

c) Show your results in parts a and b on a properly labelled diagram.