Part I. Short question (10 points each) 1. Explain the National Income and Produ

Question

Part I. Short question (10 points each) 1. Explain the National Income and Product Accounts. Which agency is in charge of such accounts and how important are these accounts? 2. Explain a typical national production function, explain each variable involved. 3. What is the difference between MPN and MRPN? 4. What is the Okun's law? Part II. Long problem (20 points each) 1. Given the following information, assuming the economy consists only two firms, construct the GDP in three approaches. Show in detail of your calculation. ABC Co. (chip maker) XYZ Co. (producer of 4 computers but sold three in the year) 800,000 400,000 (1) labor cost (2) Tax (3) Interest on debt (4) Component input $1,000,000 200,000 100,000 2,200,000 (5) Price per computer (6) Inventory per computer 1,200,000 1,000,000 (for the computer not sold) (7) Value of factory (8) Value of computer 20,000,000 30,000,000 Components produced 2,200,000 (9) Import from Singapore computer chips to be used for "component input 2. Using a historical graph to discuss labor productivity of the U.S. for the period of 3. What is the current status of the U.S. trade war with the EU, China and Canada? S600,000 by the ABC Co. 1900 to 2011. Cite major changes. Explain the economic impact on our economy.

Explanation / Answer

Part I

1) National income is the sum of all incomes including wages or compensation to employees, profits, rent and interest payments, tax received by government. It does not include transfers payments. Bureau of economic analysis, of the Department of Commerce is in charge of such accounts. These accounts help in calculating country’s GDP.

2) The national production function is

Y = KL1-*TFP where L is the labor, K is the capital stock and TFP is the total factor productivity.

3) MPN is the marginal product of labor . It tell us the increase in the total product by employing one more unit of labor.

MRPN is the marginal revenue product of labor. IT acts as the demand for labor. IT Is given by MRPN= P*MPN.

4) Okun’s law states that unemployment rate and growth rate of GDP are negatively related.

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