1 Assuming an economy with no government and no foreign trade, calculate GDP for the following output scenario. There are three firms: firm A is a mining company, firm B is a steel producer, and firm C is a car manufacturer. In a specific year, firm A sells 100 million worth of iron ore to firm B, firm B sells 200 million worth of steel to firm C, and firm C sells 500 million worth of cars to the general public. If there are no changes in inventories, no taxes, and no other producers in the economy, what is GDP? 2 How would the answer to Question 1 change if firm B had increased its inventories of iron ore by 20 million during this year? 3 How would the answer to Question 2 change if firm C had sold 50 million worth of lorries to firm A in addition to its car sales? 4 Suppose again that there are only three companies in an economy. Company A grows crops and extracts minerals from its land with no inputs from other companies. Its sales are 100m per year, half of which goes to consumers and half to companies B and C in equal amounts. Company B buys inputs from A and sells its entire output of 200m to company C. Company C buys inputs from A and B and sells its 450m output directly to consumers (though 20 per cent of this is overseas). What is gross value added at basic prices? If there is only one indirect tax, value added tax levied at 10 per cent, what is the value of GDP at market prices? 5 If the price index in 2011 is 220 and by 2012 it has risen to 228, what is the annual rate of inflation? If nominal GDP has risen from 1,500 billion to 1,575 billion, what is the growth rate of real GDP? 6 Explain why we cannot calculate the national product simply by adding up the production of all firms. 7 What is the difference between real GDP and nominal GDP and why does this distinction matter? Which measure would be appropriate for judging changes in standard of living? 8 What are the limitations of GDP per head as a measure of the quality of life? 9 What would it mean to be told that a country's GNI was greater than its GDP? 10 Using the spending-based definition (C+I+G+ NX), explain where each of the following appears in the national income accounts measure of GDP, if at all: state pensions; company pensions; student grants, theatre receipts; judges' salaries; unsold cars in showrooms; receipts from beer sales in a students' union bar; receipts from purchases of new copies of this book; receipts from purchases of second-hand copies of this book.