The dollar change in government spending

QUESTION 1
A stock or a #ow?
(a) investment
(b) capital
(c) government spending
(d) tax revenue
(e) labor force participation rate

QUESTION 2
Which COMPONENT(S) (if any) of U.S. GDP (consumption C, investment I, government spending G, and/or net exports NX) THIS YEAR would be
a”ected and how (INCREASE or DECREASE) if:
(a) You purchase some Apple, Inc. call options and your broker charges you a small option trading fee.
(b) You pay your tuition.
(c) You buy a new house in Miami and start living in it.
(d) Ford Motor Company produces some cars in Louisville, KY, but does not manage to sell them this year.
(e) The government builds a new public school in Homestead, Florida.
(f) The Weekend releases a new single (assume nobody has bought it yet).
(g) Spirit Airlines buys a new Airbus airplane produced in Europe.
(h) A pharmaceutical company spends a considerable amount on R&D in the U.S.
(i) The government increases the monetary transfers to the poor.
(j) Air China buys a Boeing airplane that was produced in the U.S. last year

QUESTION 3
Year Orange price, $/lb Quantity of oranges, lb Tangerine price, $/lb Quantity of tangerines, lb
2020 1.10 600 1.60 200
2021 1.50 200 1.50 600
A closed economy is producing just oranges and tangerines. The respective prices and quantities are listed below.
Assume that the listed quantities are also the ones bought by the “typical” consumer in the economy.
(a) Find the nominal GDP in 2021.
(b) Find the real GDP in 2021 if the base year is 2020.
(c) Find the GDP de#ator in 2021 if the base year is 2020.
(d) Find the CPI in 2021 if the base year is 2020, assuming that the $xed basket used in estimating the CPI re#ects the quantities bought in 2020.
(e) Compare the 2021 GDP de#ator with the 2021 CPI. Which one is greater? Why do you think this is the case (in this particular example)?

QUESTION 4
Consider a closed economy where all markets clear. Assume that the marginal propensity to consume is 0.9. The economy’s output increases by $10
billion (due to technological progress), the tax revenue increases by $4 billion, and the government budget DEFICIT increases by $1 billion.
(a) Calculate the dollar change in government spending.
(b) Calculate the dollar change in public saving.
(c) Calculate the dollar change in disposable income.
(d) Calculate the dollar change in consumption.
(e) Calculate the dollar change in private saving.
(f) Calculate the dollar change in national saving.
(g) Does the equilibrium real interest rate increase, decrease, or stay the same

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