a. Consider the following data of an economy in a certain year: Item Private con
ID: 1130733 • Letter: A
Question
a. Consider the following data of an economy in a certain year: Item Private consumption expenditures Private investment expenditures Government expenditures on final goods and services lax revenue Total exports of goods Total exports of services Total imports of goods Total imports of services Value(S) 8,000 2,000 3,000 2,500 1,500 10,000 9,500 2,000 i What is the Gross Domestic Product (GDP) of this economy? ii What are the private saving and trade balance of this economy respectively? ii Suppose the GDP deflator of this economy is 130 in the current year. Calculate the real GDP of this economy b. Discuss two limitations of the consumer price index (CPI) as a measure of the cost of living. From the expenditure approach, the calculation of observed GDP and the construction of aggregate demand are the same. Reconcile this puzzle with simple economic intuition. c.Explanation / Answer
Question a). i). Solution :- Gross domestic product (GDP) = Private consumption expenditure + Private investment expenditure + Government expenditue on final goods & services + Exports of goods + Export of services - Import of goods - Import of services.
= 8000 + 2000 + 3000 + 1500 + 10000 - 9500 - 2000
= $ 13,000.
Conclusion :- Gross domestic product (GDP) of an economy = $ 13,000.
Question a). ii). Solution :- Private saving = GDP - (Tax revenue + Consumption expenditure).
= 13000 - (2500 + 8000)
= 13000 - 10500
= $ 2500.
Balance of trade = Exports of goods - Imports of goods
= 1500 - 9500
= (-) 8000 Dollars.
Conclusion :- Private savings = $ 2500 and Balance of trade (or trade balance) = Negative 8000 Dollars.
Question a). iii). Solution :- Real GDP = (Nominal GDP / GDP Deflator) * 100
= (13000 / 130) * 100
= 100 * 100
= $ 10,000.
Conclusion :- Real GDP = $ 10,000.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.