ANSWER ALL OF THE QUESTIONS THE TEXT PAGES HAVE BEEN PROVIDED FOR CERTAIN QUESTI
ID: 1192321 • Letter: A
Question
ANSWER ALL OF THE QUESTIONS THE TEXT PAGES HAVE BEEN PROVIDED FOR CERTAIN QUESTIONS
2. A student once said, “Trade deficits are bad because we are buying goods from abroad & not making them here.” What is an upside to trade deficits?
3. Consumer durables depreciate just like investment goods. Suppose you purchase a refrigerator for $1000 & at the same time, 4 new designer dresses worth $1,000. After one year, has the refrigerator or the designer dresses depreciated more? WHY?
4. The Brookings Institution is a nonprofit think tank & does not typically sell its products. Explain 1 way you could measure its value added.
5. If a country discovered vast amounts of oil, sold it abroad & invested the proceeds throughout the world, how would its GDP & GNP compare?
6. If a country discovered vast amounts of oil, sold it abroad & invested the proceeds throughout the world, how would its GDP & GNP compare?
7. Taking into account the role of transfer payments, explain why national income could fall more than personal income during a recession.
8. Every year, the Philippines sends many workers abroad including nurses, health professionals & oil workers. How do you think GNP & GDP in the Philippines compare?
9. Explain carefully why valued added may be a better measure then total sales in comparing a country to a corporation. Hint: if we measure total sales in a country, would this exceed GDP? (Related to Application 1 on page 290).
10. Measure price changes do not depend on the particular base year chosen when calculating _____
A. the traditional GDP deflator
B. the chain-weighted GDP deflator
C. real GDP
11.Using date from the following table, answer the following questions:
A. Calculate real GDP using prices from 2011. By what percent did real GDP grow?
B. Calculate the value of the price index for GDP for 2012 using 201 as the base year. BY what percent did prices increase?
Quantities
Produced
Prices
CDs
Tennis Rackets
Price per CD
Price per Tennis Racker
2011
100
200
$20
$110
2012
120
210
22
120
12. Repeat Exercise 4.5 but use prices from 2012.
13. In Figure 11.5 the base year is 2005. Explain why the line for nominal GDP lies below the line for real GDP in the years prior to 2005. If the base year was 2000, where would the two lines cross?
14. Explain why the time it takes the economy to recover to the level where it originally was when the recession started is longer than the time from peak to trough. (related to application 2 on pg. 296).
15. Using the data in Table 11.5 identify the 2 most severe recessions since world war II in terms of the fall from peak to trough. What other iformation might you want to know about these & other recessionary periods to judge severity? (Related to application 2 on pg 296).
16. Men’s reported happiness has increased relative to women’s reported happiness in the last several decades. (related to application 3 on pg. 299). TRUE OR FALSE
17.Suppose a community spend $1 million on salaries & equipment for its police department. Because it believes that citizens are now more law abiding, the community decides to cut back on the number of police it employs. As a result, the community now spends $800,000 less on the police officers. The crime rate remains the same.
A. What happens to measured GDP?
Does GDP accurately reflect welfare in this case? Discuss the underlying issue that this example poses.
18. Supposed you were worried that national income does not adequately take into account the extraction of trees that provide shade & help stem global warming. How would you advise the Commerce Department to include this factor in its calculations?
19. Suppose Country A & Country B have exactly the same measured real GDP, but in Country A, the average worker spends more time at home, either doing housework or on vacation. Which country has a higher lever of welfare and why?
Quantities
Produced
Prices
CDs
Tennis Rackets
Price per CD
Price per Tennis Racker
2011
100
200
$20
$110
2012
120
210
22
120
Explanation / Answer
(2)
Trade deficit is not necessarily a problem always, especially if it is balanced by a capital account surplus. Capital account is a record of flow of capital in and out from a country, and this represents capital investments (long term and short term). The higher the capital account surplus, the larger is the proportion of long term capital investments in the country by foreigners, which boost future economic growth. And the larger the trade deficit, the larger the capital account surplus.
Therefore, trade deficit is is good for future growth purposes.
(3)
The concept of depreciation applies to durable, capital goods whose benefits exceed more than 1 year. Apparel, food or drinks don't qualify as capital goods as their benefits extend to short term only. Therefore, the refrigerator will depreciate over a year while the clothes purchased will not.
(4)
Value added by the Think Tank can be measured if we measure GDP using the Incomes approach. The salary paid to the Think Tank employees will be counted as income from unemployment, and will be included in the GDP. The expenditure method or Value added method of GDP cannot be used here, since a Think Tank offers non-marketable goods whose price or value cannot be imputed. So, the income approach is the only method we can use to include in GDP computation.
(5) & (6) [Same question is repeated]
The sale proceeds from the oil will be included in GDP. Amount invested within the country will also be included within GDP.
However, income from amount invested in other countries will not be included within GDP, instead this will be a component of GNP, computed as an addition to GDP with factor income from abroad. Therefore, GNP will be higher than GDP.
(7)
National Income (NI) = GDP + Net factor payments from abroad - Capital depreciation - Indirect business taxes
Personal income = NI - Transfer payments
During recession, the transfer payments decrease as well as decease in GDP, resulting in a reduced national income, but since Transfer payments also decrease, personal income decreases by an amount lower than NI. Therefore, reduction in NI is more than the reduction in personal income.
NOTE: There are innumerable different questions clubbed together, out of which I've answered the first 5 questions.
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