Answers to Chapter 1 - Texas A&M University
Answers to Chapter 2
1. b. 10%
2. Net Worth (Equity) = Assets – Liabilities
$16 million = $30 million – Liabilities
Liabilities = $14million
3. Marketing Bill
4. b.
5. d.
6. (a) farm input supply sector (d) wholesale and retail sector
(b) farm sector (e) final consumers
(c) processing and manufacturing sector
7. labor
8. 20
9. Real Income = [pic]
Real Income = [pic] = $30,000
10. Year Pounds of Cattle Slaughtered Output Index (Base Year = 2007)
2005 180,000 180,000/200,000 = 0.9
2006 250,000 250,000/200,000 = 1.25
2007 200,000 1
11. a, b, c are true
12. 2 million
13. a. Net farm income = $500,000 + $100,000 + $50,000 - $300,000 = $350,000
b. Equity = $10,000 + $1,000,000 + $5,000,000 - $8,000,000 = $8,000,000
14. a. output index for 2005 = [pic] = 0.9333 (2006 = base year)
Relative to 2006, output is lower by 6.67% in 2005.
b. Price index for 2007 = [pic] = 0.9655 (2006 = base year)
Relative to 2006, prices are lower by 3.45% in 2003.
c. nominal income = price *output – production expenses
Year 2005 (70,000)($3.20) - $120,000 = $224,000 - $120,000 = $104,000
Year 2006 (75,000)($2.90) - $140,000 = $217,000 - $140,000 = $77,500
Year 2007 (80,000)($2.80) - $135,000 = $224,000 - $135,000 = $89,000
Year Nominal Income CPI Real Income
2005 $104,000 1.10 $94,545
2006 $77,500 1.20 $64,583
2007 $89,000 1.15 $77,391
Best Year in terms of Real Income (and nominal income as well) is 2005.
15. Nominal Income in 1995: $24,000
CPI for 2007 = 1.5 with base year of 1995
Nominal Income needed in 2007 to match the spending power of the $24,000 in 1995 is ($24,000) x 1.5 = $36,000
16. Review output indices and price indices
17. Review the notions of nominal and real figures in economics.
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