ECON 620 Problem Set 4

1. Identify the component(s) of GDP (in the expenditure approach) to which each of the following belongs:

a. A U.S. resident’s purchase of a new automobile manufactured in Japan.

b. Construction of a new dormitory at Maryville University.

c. A household’s purchase of ten hours of legal advice from a lawyer.

d. St. Louis City’s acquisition of 10 new police cars.

e. Missouri farmers sell their corn to buyers in China.

f. University of Missouri builds a new nuclear-physics laboratory.

2. Determine whether or not each of the following activities is included in GDP. If you say “included”, identify which expd. component of GDP it would fall under. If you say “not included”, explain why not.

a. The government sends out social-security checks to some households.

b. In the spring, some people repaint their own homes.

c. Traders in financial markets trade millions of dollars’ worth of stocks & bonds.

d. Financial brokers earn millions of dollars of fees every year.

3. Given:



Output Qty.

Unit Price

Output Qty.

Unit Price











a. Calculate the nominal GDP of this economy in 2008 and in 2010.

b. Using 2010 as the base year, calculate the real GDP in 2008 and in 2010.

4. True or False, and explain each answer:

a. If prices are rising, then real GDP rises more slowly than nominal GDP.

b. If you are told that the annual growth-rate of Econland’s real GDP in 2008 was –3.2%, it means that the real GDP in Econland in 2008 was negative.

c. It is possible for nominal GDP to rise during a period of recession.

d. If Nation A has a higher real GDP than Nation B, then we conclude that the average person in Nation A has a higher standard of living than in Nation B.

5. For the latest update on GDP, go to”>BEA (Bureau of Economic Analysis) (Links to an external site.) website and click on the “Current Releases” button in the “News” section on the left sidebar, then hit the link to “Gross Domestic Product” under the “National” section of releases. You will see details about the latest GDP estimate – the components that are moving it, its technical aspects, including its accuracy (or lack thereof).

a. Which elements or components of GDP contributed to its most recent growth?

b. Which elements or components presented a drag on recent GDP-growth?

c. What happened to business inventories? to total business investment expenditures?

d. What happened to the trade balance? to exports? to imports?

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