The Macroeconomic Perspective

1. Answer the following questions about components of demand in GDP:

a. List the components of demand from the most important to the least important.

b. What component of demand fluctuates the most?

c. Why does the government share of demand appear (perhaps) surprisingly small?

2. The exchange rate for Estonia is 14 krooni per dollar. The exchange rate for Uruguay is 10 pesos per U.S. dollar. First, recalculate both of these exchangers in terms of how many U.S. dollars per unit of foreign currency. Then calculate the exchange rate between Estonian krooni and Uruguayan pesos. (Hint: Because you know how much each is worth in U.S. dollars, it becomes possible to compare them to each other.)

3. India has a GDP of 23,000 billion Indian rupees, and a population of 1.1 billion. The exchange rate is 50 rupees per U.S. dollar. Calculate the GDP per capita of India as measured in U.S. dollars.

4. Is it possible for GDP to rise at the same time that per capita GDP is falling? Explain. Is it possible for per capita GDP to rise at the same time that GDP is falling? Explain.

5. Which of the following are included in GDP, and which are not?

a. The cost of hospital stays

b. The rise in life expectancy over time

c. Child care provided by a licensed day care center

d. Child care provided by a grandmother

e. The sale of a used car

f. The sale of a new car

g. The greater variety of cheese available in supermarkets

h. The iron that goes into the steel that goes into a refrigerator bought by a consumer

6. Explain briefly whether each of the following would cause GDP to overstate or understate the degree of change in the broad standard of living:

a. The environment becomes dirtier.

b. The crime rate declines.

c. A greater variety of goods become available to consumers.

d. Infant mortality declines.