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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