University Macroeconomics Assignment: Problem Set Analysis

This assignment solution addresses key concepts in macroeconomics, providing detailed answers to a problem set. The first question examines transfer payments and their inclusion in GDP. The second question analyzes what is counted in GDP in various scenarios, such as reselling goods and performing services at home. Question 3 identifies the GDP expenditure component (C, I, G, or NX) for various economic activities, including the purchase of a new home, military equipment, imported wheat, and a cheeseburger. Question 4 discusses how efforts to include unreported economic activities would affect GDP calculations. Finally, question 5 presents data to calculate and analyze nominal GDP, real GDP, and the GDP deflator over several years.

Running head:PRINCIPLES OF MACROECONOMICS
Macroeconomics
Name of the Student
Name of the University
Course ID

1PRINCIPLES OF MACROECONOMICS
Table of Contents
Question 1..................................................................................................................................2
Question 2..................................................................................................................................2
Question 3..................................................................................................................................3
Question 4..................................................................................................................................4
Question 5..................................................................................................................................5
References..................................................................................................................................6

2PRINCIPLES OF MACROECONOMICS
Question 1
The payment for social security work is a form of transfer payment that government
give to the citizen. This kind of payment though is a part of government budget but is not
included in GDP. This is however counted in personal consumption expenditure when used to
purchase some final goods or services.
Gross Domestic Product of a nation refers to the macroeconomics variable that
computes market value of all final goods and services in the economy during a particular
period. Only payments related to spending on final goods and services are included in GDP
computation (Goodwin et al., 2015). As transfer payments do not present form of payment on
goods or services, there are not part of final demand and therefore is not included in GDP. If
the recipients are used to purchase goods or services they are include in GDP in the form of
personal consumption expenditure. In order to avoid the double counting transfer payments
are not counted in GDP.
Question 2
A.
The purchase of new wii at GameStop last year and resold it on eBay this year is not counted
in this year’s GDP. The Wii has already been included in production of last year. Reselling it
on eBay is no longer a part of production in this year and therefore is not counted in this
year’s GDP.
B.
Spending Saturday cutting grass at the house is not counted in GDP. Services done at home is
not a part of marketed activity (Uribe and Schmitt-Grohe, 2017). As no payments are
received again this service, this is not included in current year GDP.

3PRINCIPLES OF MACROECONOMICS
C.
Purchase of dummies book at Barnes and Noble is counted in this year’s GDP. Investment for
dummies book at Barnes and Noble is a part of personal consumption expenditure and
therefore is included in computation of this year’s GDP.
D.
Purchase of historic home will be counted in this year GDP. Transaction of historic items are
not included in GDP as this is not a part of current year production and therefore is counted in
the GDP. Service of the real estate agent however is counted in final service of this year. This
service is counted in this year’s GDP.
E.
Purchase of tire to replace the damaged tire of the car is counted in this year GDP. Purchase
of tire is included in spending of final goods and services this year (Heijdra, 2017). This is
actually included in personal consumption expenditure of this year and hence, is included
GDP of this year.
Question 3
a.
A new home
New home is a part of investment expenditure. This belongs to the investment (I)
component of GDP.
b.
Parachute purchased by the US. Army

4PRINCIPLES OF MACROECONOMICS
Parachute purchased by the US. Army is considered as defense expenditure which is a
part of government expenditure. This therefore belong to the government expenditure (G)
component of GDP.
c.
Wheat imported from Canada
Export and import of goods or services is included in net export of GDP. Imported
wheat from Canada is therefore belong to net export (NX) component of GDP.
d.
Cheeseburger purchased for lunch
Cheeseburger purchased for lunch is counted as personal consumption expenditure
(Dullien et al., 2018). This belongs to consumption expenditure (C) component of GDP.
Question 4
GDP is a measure of market value of all goods and services that are produced in the
nation. It evaluates monetary values of all goods and services that are marketed in a particular
year. Only goods and services that are reported to the government are included in the official
estimation of GDP (Mitchell, 2019). There are however legal or illegal transaction taking
place outside the market and therefore is not reported to the government. Without these
activities, official GDP figure give an underestimation of aggregate values of goods and
service of the nation. Now, if efforts are given to count these goods and services, this will
affect GDP computation in a positive way. The measured GDP then would include values of
all the produced goods and services. The effort to include non-reported activities in the GDP
would give a composite measure of GDP (Mankiw, 2016). GDP would then cover a broad
spectrum of goods and services. If all these goods and services are included in GDP

5PRINCIPLES OF MACROECONOMICS
computation, then measured GDP would be higher than that computes without including
these activities. Any effort to count these goods and services therefore increases GDP
measured in traditional method.
Question 5
Year Nominal
GDP Real GDP GDP
Deflator
2009 100000 107527 93
2010 117000 117000 100
2011 125000 120000 104
2012 150000 126050 119
2013 206720 152000 136

6PRINCIPLES OF MACROECONOMICS
References
Dullien, S., Goodwin, N., Harris, J.M., Nelson, J.A., Roach, B. and Torras, M.,
2018. Macroeconomics in Context. Routledge.
Goodwin, N., Harris, J.M., Nelson, J.A., Roach, B. and Torras, M., 2015. Macroeconomics in
context. Routledge.
Heijdra, B.J., 2017. Foundations of modern macroeconomics. Oxford university press.
Mankiw, N.G., 2016. Principles of economics. Cengage Learning.
Mitchell, W., 2019. Macroeconomics. Macmillan International Higher Education.
Uribe, M. and Schmitt-Grohe, S., 2017. Open economy macroeconomics. Princeton
University Press.