answer number 3-6 ligll of numinBer income approach add up to the same CONCEPT 7
ID: 1131650 • Letter: A
Question
answer number 3-6
ligll of numinBer income approach add up to the same CONCEPT 7. Look at a recent editio economic indicators. C list of the ones with th also at the forecast ra contents at the begin cles about any of the describing the event countries. Explain v Consumption Investment Depreciation ses in GDp o use GDP a peculharities of ional changes 600 500 Compensation of employees Government purchases Direct taxes roduction an uch as pollution, hing about what ow income is dist oignores many 800 8. During 2002, real C the same period, re terms. What are so consumers falling sition of GDP usi c in 700 2. How do we know that calculating GDP by the expenditure approach yields the same answer as calculating GDP by the me (GNI) is GNp ge of currency income approach? the same in 1972, but there was a $300 billion difference by mid-1975. Explain why. Describe what the numbers here sug- following transac 3. As the following table indicates, GNP and real GNP were almost9. [Related to the your answers. a. General Mot construction utes of 'cy etelCot gest about conditions in the economy at the time. How do the b. General Mo c. Company A nconditions compare with conditions today? REAL GNIP (BILLIONS OF (BILLIONS OF REAL GNP DOLLARS) DEFLATOR company B d. Your grand e. You buy a f. You buy a g. The gover (% CHANGE) (%CHANGE) DATE DOLLARS) 10.93 1,284 1,307 h. A public smokesta 1,256 1.266 i. Luigi's P nventor 9 nt, p. 427 10.78 12.03 1.247 P. 430 t enterprises,p.4 y p. 436 drug 10. If you buy tion in the 1.204 4. What are some of the problems in using fixed weights to conm accountu the purch How is h Account nto the rent on pute real GDP and the GDP price index? How does the BEA'S approach attempt to solve these problems? GDP: GDP nge in busines I end of period to 5. Explain what double counting is and discuss why GDP is not equal to total sales. 6. The following table gives some figures from a forecast of real GDP (in 2005 dollars) and population done in mid-2010. According to the forecast, approximately how much real growth will there be between 2010 and 2011? What is per capita real GDP projected to 11. Explain approa 428Explanation / Answer
A-3) Nominal GNP essentially measures the total value of all finished goods and services produced in a country in a year by its nationals. This does not account for the change in prices which implies nominal GNP increases as prices increase. On the other hand, real GNP takes into account the changing prices and hence uses a base year for the prices to be fixed. Hence, if prices change real GNP won't change. This implies that real GNP would only change if production changes. In mid-1975 there is a difference between the real and nominal GNP because of the oil shock. Due to the oil shock, oil prices had increased which led to a rise in the inflation. Hence, as prices rose nominal GNP rose. However, production did not increase at the same pace and so we see a difference between the two measures. Today the economy is much stable with a lower inflation rate and higher production.
A-4) There were some problems with the fixed weight system. First, it did not account for structural changes, if any, and it seems unlikely for older weights to be appropriate for the newer indices. Second, it did not account for supply shifts and hence substitution responses could not be considered. To counter these problems the BEA has shifted from a fixed weight system to a chain-weighted system.
A-5) Double counting occurs when the value of any good or service is counted twice in the calculation of GDP. GDP is not equal to total sales because GDP counts the value of just the final product while total sales also include the values of the intermediate products purchased and sold. If we also take the values of the intermediary products for calculation of GDP, it would lead to double counting as it has already been taken into account while calculating the value of the final product.
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