Page 193 - Krugmans Economics for AP Text Book_Neat

Section 3 Summary

2. A more complex circular-flow di- Government purchases of
agram for the economy of goods and services = $150 Government borrowing = $60
Government
Macronia is shown at right.
a. What is the value of GDP in
Taxes = $100 Government transfers = $10
Macronia? Private savings = $200
b.What is the value of net
Households
exports? Consumer Wages, profit,
c. What is the value of dispos- spending = $510 interest,
rent = $800
able income?
d.Does the total flow of money Markets for goods Factor Financial
out of households—the sum and services markets markets
of taxes paid, consumer
Gross Wages, profit,
spending, and private domestic interest,
savings—equal the total flow product rent = $800 Borrowing and
stock issues by
of money into households? firms = $110
Firms
e. How does the government fi-
Investment
nance its spending? spending = $110
Foreign borrowing
Exports = $50 and sales of stock = $130
Rest of world
Imports = $20 Foreign lending and
purchases of stock = $100

3. The components of GDP in the accompanying table were pro- a. Calculate consumer spending.
duced by the Bureau of Economic Analysis. b.Calculate private investment spending.

c. Calculate net exports.
Components of GDP in 2009 d.Calculate government purchases of goods and services and
Category (billions of dollars)
investment spending.
Consumer spending e. Calculate gross domestic product.
Durable goods $1,034.4 f. Calculate consumer spending on services as a percentage of
Nondurable goods 2,223.3 total consumer spending.
Services 6,835.0 g. Calculate exports as a percentage of imports.
Private investment spending h.Calculate government purchases on national defense as
a percentage of federal government purchases of goods
Fixed investment spending 1,747.9
and services.
Nonresidential 1,386.6
4. The small economy of Pizzania produces three goods (bread,
Structures 480.7
cheese, and pizza), each produced by a separate company. The
Equipment and software 906 bread and cheese companies produce all the inputs they need
Residential 361.3 to make bread and cheese, respectively. The pizza company
Change in private inventories –125.0 uses the bread and cheese from the other companies to make
its pizzas. All three companies employ labor to help produce
Net exports
their goods, and the difference between the value of goods sold
Exports 1,560.0 and the sum of labor and input costs is the firm’s profit. The
Imports 1,950.1 accompanying table summarizes the activities of the three
companies when all the bread and cheese produced are sold to
Government purchases of goods and
the pizza company as inputs in the production of pizzas.
services and investment spending
Federal 1,444.9
Bread Cheese Pizza
National defense 779.1
company company company
Nondefense 365.8
Cost of inputs $0 $0 $50 (Bread)
State and local 1,788.4
35 (Cheese)
Wages 15 20 75
Value of output 50 35 200

Summary 151