microeconomics questions , please describe them 6: An economy faces two types of
ID: 1193803 • Letter: M
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microeconomics questions , please describe them
6: An economy faces two types of shocks, demand shock and supply shock. Define each by giving your unique example 7: Gross domestic product (GDP) is the value of all the final goods and services produced in a given year. GDP does not count intermediate goods values, why? 8: There are two approaches to measuring gross domestic product (GDP), expenditures approach and income approach. Expenditures approach is comprised of consumption expenditures, investment expenditures, government expenditures plus net exports (exports minus imports). Households create income by supplying their labor to the firms. What items is the incomes approach comprised of? Hint: one item is compensation of employees 9: An economy officially enters into a recession after two consecutive quarters of NEGATIVE economic growth. Recession is only one phase of the business cycle, other phases are expansion, peak and contraction and recession. Business cycle is defined as fluctuations in the level of economic activity. Currently we are in the expansionary phase of the U.S. business cycle. Business cycles are the most difficult cycles to predict. However the sequence is always the same particularly for emerging markets, crisis, adjustment, boom, crisis, adjustment boom. Factor incomes are comprised of wages, interest, rent and capital. GDP does not measure certain items, what are they and why? What constitutes gross private domestic investment? Give examples and explain 10: What are the uses and limitations of real GDP The components of GDP can be seen from the income, expenditure identity expressed as Y = C + I + G + X - M. Please give a brief description of what each letter represents. How does one calculate the GDP deflator what does it measure? Why is it important to take the effects of inflation out of GDP to reveal the rate of growth of our economic well-being?Explanation / Answer
6.
Demand shock: This is a sudden incident which increases or decreases market demand of products or services. Positive and negative demand indicates increase and decrease demand respectively.
Example of positive demand is tax cut. Reduction in government tax increases money supply in the market. It is a kind of income effect which increases demand in the market. Similarly imposition of tax is a negative demand. Since people do not have enough money in hand, demand of goods and services in the market reduces.
Supply shock: This is a sudden incident which increases or decreases supply of goods and services in the market.
Example of supply shock is natural disaster like earthquake. In this case producers might not able to get raw materials or cheap labor, causing the increase in price of products and lowering the quantity supply.
7.
The value of intermediate goods should not be counted in GDP, because such goods are reused in production and the value of final products are already included with the value of intermediary goods value.
Therefore, if these are counted separately there will be double counting in GDP. The amount of GDP would be wrong.
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