PLEASE TYPE YOUR ANSWER I. Suppose a new computer is invented that sells for one

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PLEASE TYPE YOUR ANSWER

I. Suppose a new computer is invented that sells for one quarter of the price of existing computers and performs as well. Now when nominal GDP is calculated, production of the same number of computers creates only 1/4 as much dollar output. Why? Does real GDP rise, fall, or stay the same? 2. Some feel capital gains are undeserved and should be taxed at 100 percent, while others believe that doing so would destroy entrepreneurial incentives. Which position do you support and why? Are capital gains included in GDP? Why or why not? 3. What is deflation? How might it affect consumer spending, business investment, and employment? Be specific. 4. In what sense is inflation a tax on the poor? Explain your answer

Explanation / Answer

1) Nominal GDP is the value of final good ( here computer ) produced in a given year expressed in the price of the same year . So new computer sells at 1/4 th price of old computer . Hence nominal GDP falls to 1/4 th of the previous value . This is because nominal GDP = Quantity * New price . So even if same number of computers are produced the dollar value is 1/4th .

Real GDP is the value of goods produced in a given year expressed in the prices of the base year . So real GDP stays the same . Since in the base year price was 4 times price of present year , so the real GDP will not change .

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