Answer each question separately The measure to measure the value of the final to
ID: 1163202 • Letter: A
Question
Answer each question separately
The measure to measure the value of the final total production in a country during a year is the gross domestic product
Which variables determine the gross domestic product?
What are the two approaches used to measure gross domestic product?
If the countries that export oil (OPEC) to the rest of the world decide to increase the price per barrel of oil, explain what impact the increase will have on the price level of the following
The maritime and terrestrial transportation of products
Consumer goods and services
The electric energy
Explain how a severe drought in a country, whose main activity is agriculture, can affect
The gross domestic product of that country
The unemployment rate
The price index of agricultural products
Explanation / Answer
1) GDP is the market value of final goods and services produced within the domestic territory of a country during one year. Components of GDP are Consumption expenditure, investment spending, government expenditure and net exports.
a) Private Final Consumption Expenditure (C): It refers to expenditure on final goods and services by the individuals, households, and non-profit private institutions serving society. It includes: consumer services, consumer non durable goods and consumer durable goods.
b) Government final consumption expenditure (G): It refers to expenditure on final goods and services by the Government like expenditure on purchase of goods for consumption by the defence personnel.
c) Investment expenditure (I): It refers to expenditure on final goods and services by the producers. Example: expenditure by the farmers on the purchase of tractors or thrashers. It includes fixed investment and inventory investment.
d) Net exports refers to the difference between exports and imports during an accounting year. Exports are an expenditure by the foreigners on the domestic goods and services while imports are an expenditure on the goods and services produced abroad.
2) Two approaches used to measure gross domestic product;
(i) Product or Value added method: It is that method which measures domestic income by estimating the contribution of each producing enterprise to production in the domestic territory of the country in an accounting year.
(ii) Income method: It is also called Distributed Share Method or Factor Payment Method. According to this method, national income is measured in terms of factor payments like wages, rent, interest and profit to the owners of factors of production like labor, land, capital and enterprise during accounting year. Domestic income is estimated as the sum total of factor incomes generated within the domestic territory of a country during an accounting year.
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