EXERCISE 3 Page 1 of 3

UNIVERSITY OF THE PHILIPPINES

School of Economics
Economics 100.1
Introduction to Macroeconomic Theory and Policy
Exercise 3

Prof. Solita C. Monsod / R. Domingo / R. Valientes 2nd Semester, AY 2009-2010

Please use yellow paper. Show your solutions for items requiring calculations.

Submission: September 8

You should sign your answer sheets

PART 1. Fill in the missing values.

Nominal Per Capita Per
Real GDP Population Inflation
Year GDP CPI Nominal Capita
(Billion) (Million) Rate
(Billion) GDP Real GDP
1993 729.102 100.0 58.72
1994 912.027 112.2 60.10
1995 1068.557 128.1 60.70
1996 1266.070 152.0 62.13
1997 1385.562 165.6 63.58
1998 1500.287 178.2 65.11
1999 1737.728 194.3 66.59
2000 1967.743 210.10 68.62

PART 2. Explain the following:

1. Why do national income accountants compare the market value of the total outputs in various years rather than
the actual physical volumes of production? What problem is posed by any comparison over time of the market
values of various total output? How is this problem resolved?

2. Identify the items that belong to the following code:

C – Consumption Sp – Savings of persons or households
I – Investment (domestic) M – Imports
G – Government spending on goods and services X – Exports
T – Taxes F – Factor income payments
Sb – Savings of business N – None of the above

_____ (1) Student gets a haircut from a self-employed barber

_____ (2) Barber buys some new clippers from the Short-Cut Clipper Company.
_____ (3) Out of each day’s revenue, the barber sets aside P 20 in his piggy bank.
_____ (4) When he has enough set aside, he buys a share of Consolidated Edison stock.
_____ (5) Consolidated Edison replaces old generators with new, bigger, and more expensive ones.
_____ (6) Consolidated Edison pays a franchise tax to Makati City.
_____ (7) Makati City hires more teachers for Makati City Public School.
_____ (8) Consolidated Edison sets aside some of its income as depreciation reserves.
(9) The Short-Cut Clipper Company has profits of P 1,000,000 after paying corporate and local taxes.
_____ (a) It pays P 375,000 in corporate profits taxes to the government.
_____ (b) It pays dividends of P 600,000.
_____ (c) It retains the rest and adds it to its surplus.
_____ (10) Filipinos go to the US and stay at the Ritz Plaza in New York. (two answers)
_____ (11) Thailand buys tractors from the International Harvester Company.
_____ (12) Mr. Cruz builds 1,000 new houses to put on the market.

3. Which of the twelve items would be included in the output expenditure approach to measuring GNP?
EXERCISE 3 Page 2 of 3

PART 3. According to reviews, the movie TITANIC is by far the top grossing movie of all time. As a movie enthusiast and an
Economist at the same time, I say it is “Gone With the Wind”. Using the data below, prove that I am correct (that is by
constructing a new ranking using real gross sales).

Nominal Real
TOP GROSSING MOVIES
YEAR RANK Gross Sales CPI Gross Sales RANK
Ranked by Nominal (Current) Dollars
(million $) (million $)
Titanic 1997 1 $601 160.50
Star Wars - Original 1977 2 $461 60.60
ET 1982 3 $434 96.50
Star Wars - New 1999 4 $431 166.60
Jurassic Park 1993 5 $357 144.50
Forrest Gump 1994 6 $330 148.20
Harry Potter 2001 7 $317 177.10
Lion King 1994 8 $313 148.20
Return of the Jedi 1983 9 $309 99.60
Lord of the Rings 2001 10 $307 177.10
Independence Day 1996 11 $306 156.90
Sixth Sense 1999 12 $293 166.60
Empire Strikes Back 1980 13 $290 82.40
Home Alone 1990 14 $286 130.70
Gone With The Wind 1939 15 $200 14.10

PART 4. Given an economy with the following income accounting figures:

Item Billions of Pesos Item Billions of Pesos
Exports 367 Transfer Payments 320
Dividends 60 Interests 201
Consumption of Fixed 307 Proprietor’s income 132
Capital
Wages and Salaries 1442 Personal consumption 1810
expenditures
Government purchases 577 Imports 338
Rents 33 Social security contributions 148
Indirect business taxes 255 Undistributed corporate 55
profits
Wage and salary 280 Personal taxes 372
supplements
Gross private domestic 437 Net factor income earned in 0
investment the economy
Corporate income tax 88

a. Compute for the following:

i) Compensation of employees
ii) Net Exports
iii) Net private domestic investment
EXERCISE 3 Page 3 of 3

b. Using the figures from the table and your answers in (a), complete the table below:

GDP Expenditure Approach GDP Income Approach

_________ _________
_________ _________
_________ _________
_________ _________
_________
_________
_________
_________
_________
_________
GDP: _________ GDP: _________

c. In this economy:
i) Net domestic product is:
ii) National income is:
iii) Personal income is:
iv) Disposable income is: