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Mr. Gregory White
Mr. Gregory White, Master's Degree
Category: Multiple Problems
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Experience:  M.A., M.S. Education / Educational Administration
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1. Why does inflation make nominal GDP a poor measure of the

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1. Why does inflation make nominal GDP a poor measure of the increase in total production?

2. Which component of GDP will be affected by each of the following transactions involving FlyCheap Airlines? If you do not believe any component will be affected, briefly explain why.
i. You purchase a ticket on a FlyCheap Airlines to visit your niece.

ii. FlyCheap Airlines purchases a new jetliner from Boeing.

iii. FlyCheap Airlines purchases new seats to be installed on a jetliner it already owns.

iv. FlyCheap Airlines purchases 200 million gallons of fuel.

v. A French citizen purchases a ticket to fly on a FlyCheap flight from Paris to New York.

vi. The city of Nashville agrees to spend funds to extend one of the runways so that FlyCheap will be able to land larger jets.

3. Use the table to answer the following questions.
Year Real GDP (Billions of 2000 Dollars)
1993 $7,113
1994 7,101
1995 7,337
1996 7,533
1997 7,836

i. Calculate the growth rate of real GDP for each year from 1994 to 1997.

ii. Calculate the average annual growth rate of real GDP for the period from 1994 to 1997.

iii. How does the average annual growth rate you calculated in (ii) above compare to the average growth rate the U.S. normally expects?

4. In an open economy, trade is allowed between countries. Assume a consumer purchases $1,000 worth of furniture manufactured in China. Answer the following:
a. Which component(s) of GDP are impacted by this purchase?

b. Does GDP increase, decrease or stay the same? Briefly explain why.

c. Does your answer change if the company in China is a U.S.-owned company? Why or why not?
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Customer: replied 5 years ago.
I do not see a response to the final question? Maybe an oversight on my part but here it is again, if you would not mind helping me verify my own response:
c. Does your answer change if the company in China is a U.S.-owned company? Why or why not?

I do not think that the answer would change because construction was elsewhere and there would be costs associated with that which would affect GDP. (is this a correct assessment?)

Thank you.