FUNDAMENTALS OF BUSINESS ECONOMICS

Answers to Recommended Problems #1

Chapter 2

10. 

a.  Not included - transfer payment, no goods or services involved

b.  Not included - transfer payment, no goods or services involved

c.  Investment - increase in inventory is considered investment

d.  Investment - residential construction is considered investment

e.  Not included - financial transactions not counted

f.  Not included - financial transactions not counted

g.  Government spending - government expenditure for a service

h.  Not included - intermediate product

i.  Consumption, investment - positive for consumption, negative for investment (inventory decrease)

j.  Net exports - exports

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Chapter 3

4.

a.  No change

b.  Increases because unemployment increases

c.  Increases at first because labor force increases but employment does not; eventually decreases

d.  Decreases when they get jobs; quality of jobs doesn't matter

e.  Increases because labor force increases

f.  No change because they are already in the work force

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Chapter 4

3. a.

1985 - 1986 = 66.67%

1985 - 1991 = 453.36%

1991 - 2000 = 1.67%

2000 - 2005 = 11.14%

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4.  Real GDP = Nominal GDP / Price Index => 400 = Nominal GDP / 0.9 => Nominal GDP = 360

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12. 

a.  Procyclical

b.  Procyclical

c.  Countercyclical

d.  Countercyclical

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