Part I

Describe John Maynard Keynes’ contribution to the theories of Macroeconomics. Why was he such an important economist? Discuss the theories of two other 20th century economists who made a significant contribution to the study of economics.

Part II

Assume that Country A has a population of 500,000 and only produces one good: cars. Country A produces 100,000 cars per year. The people in Country A purchase 90,000 cars, but there are not enough cars to fulfill all the demand. They decide to import 50,000 more. The government buys 25,000 cars for its police force, and 10,000 cars are bought by companies to transport employees to other locations to work. They also export 65,000 cars to nearby countries for sale.

• What is Country A’s GDP?
  • What is the composition of GDP by percentage?
  • What is the GDP per capita?
  • If government purchases go up in the short run, what happens to GDP? Show this graphically.
  • If consumption and government purchases go up, what happens to GDP in the long run? Why? How would this look in a graph?
  • How does this relate to Keynesian economics?

Part III

Go to the Bureau of Economic Analysis on the Department of Commerce’s Web site, and look up the latest new release for real GDP.

• Where are we in the business cycle?
• What is the real GDP today?
• What is the nominal GDP today?
• What is the difference between nominal and real GDP?
• What is the largest component of GDP?
• What is the smallest component of GDP?
• What is the fastest growing component of GDP and why?
• What components of GDP were involved in the change from last month to this month?
• What is the price index today?
• What caused the change?
• Is the GDP price index different from the CPI? How so?
• Which price index—CPI, GDP, or PPI—makes the most sense to you?