ECON1002 Introductory Macroeconomics, Semester 2, 2023 1

TUTORIAL 2
(Week beginning August 7)

READING GUIDE: REVIEW WEEK 1 LECTURE AND TEXTBOOK CHS 1 & 2.

KEY CONCEPTS: MEASUREMENT AND MEANING OF GDP

SELF-REVIEW OF CONCEPTUAL UNDERSTANDING

These are to be attempted before the tutorial. They may not normally be covered in the tutorial,
maybe, except for a quick review, time permitting. The answers are typically found in the textbook
and lecture notes.

1. What is the economic rationale for using market prices to value a nation’s GDP?
2. Distinguish between the production, expenditure and income approaches to calculating
GDP? Would you expect these approaches to give the same figure for GDP? Explain.
3. What’s the difference between GDP and GNI?

PRACTICE PROBLEMS (FOR IN-CLASS DISCUSSION)

1. Which of the following items would be included in (current) GDP? Explain why.
(a) You buy a second-hand Mazda 3.
(b) Max Brenner purchases a new hot chocolate machine.
(c) You buy a new Nespresso coffee machine.
(d) You buy a copy of Mao’s Last Dancer from the US Amazon.
(e) Wages earned by a French backpacker from picking grapes in the Hunter Valley

2. George and John, stranded on an island, use clamshells for money. Last year George
caught 300 fish and five wild boars. John grew 200 bunches of bananas. In the two-person
economy that George and John set up, fish sell for one clamshell each, boars sell for 10
clamshells each, and bananas go for five clamshells a bunch. George paid John a total of
30 clamshells for helping him to dig bait for fishing, and he also purchased five of John’s
mature banana trees for 30 clamshells each. What is the GDP of George and John’s island
in terms of clamshells?
3. Intelligence Incorporated produces 100 computer chips and sells them for $300 each to
Bell Computers. Using the chips and other labour and materials, Bell produces 100
personal computers. Bell sells the computers, bundled with software that Bell licenses from
Macrosoft at $50 per computer, to PC Charlie’s for $800 each. PC Charlie’s sells the
computers to the public for $1000 each. Calculate the total contribution to GDP using the
value-added method. Do you get the same answer by summing up the market values of
final goods and services.

Tutorial Tasks
ECON1002 Introductory Macroeconomics, Semester 2, 2023 2

4. Here are some data for an economy. Find its GDP. Explain your calculation.
Consumption expenditures $600
Exports 75
Government purchases of goods and services 200
Construction of new homes and apartments 100
Sales of existing homes and apartments 200
Imports 50
Beginning-of-year inventory stocks 100
End-of-year inventory stocks 125
Business fixed investment 100
Government payments to retirees 100
Household purchases of durable goods 150

5. An economy produces three goods: cars, computers, and oranges. Quantities and
prices per unit for years 2007, 2008 and 2009 are as follows:

2007 2008 2009

(a) What is nominal GDP in 2007, 2008 and in 2009? By what percentage does
nominal GDP change from 2007 to 2008, and 2008 to 2009?

(b) Using the prices for 2007 as the set of common prices, what is real GDP in
2007, 2008 and in 2009? By what percentage does real GDP change from
2007 to 2009 and 2008 to 2009?

(c) Using the prices for 2008 as the set of common prices, what is real GDP in
2007, 2008 and in 2009? By what percentage does real GDP change from
2007 to 2008 and 2008 to 2009?

(d) Why are the two output growth rates constructed in (b) and (c) different?
Which one is correct? Explain your answer.

6. Answer the following.

(a) Explain why per-capita GDP may not be an accurate measure of economic
welfare.
(b) What are some of the alternatives to GDP that have been proposed to
measure a country’s economic progress?

Tutorial Tasks