1. GDP is defined as the market value of all finals good and services produced w
ID: 1219207 • Letter: 1
Question
1. GDP is defined as the market value of all finals good and services produced within a country in a given period of time. in spite of this definition, some production is left out of GDP. please detailed Explain Why some finals good and services are not included.
2. you find that your paycheck for the year is higher this year than last. Does it mean your real income has increased? Explain it with an example.
3. identify the immediate effect of each of the following events on U. S. GDP and its components.
3a. Amy received a social security check.
3b. Tony buys an Italian sport car
3c. Henry buys democatilly produced tools for his construction company.
Explanation / Answer
At first we need to know what is GDP-GDP=Gross Domestic Product.GDP is a measure of nation's total economic activity.GDP includes value of all goods and services which are produced in a geographical boundary over a specified period of time.There are some goods and services which are not included into GDP-like-1.black-market activities,2. barter,3. and unpaid work.
1Black Market Economy-It is a kind of economy known as underground economy.Any type of illegal currency exchange is included into such category.Such activity is against law.Suppose a per has got 25 crore rupees at a time from any robbery,is named as black market economy.Few more examples are-drug trade, prostitution, illegal currency transactions and human trafficking.In that case allparticipants want to hide their income from govt and so tax evasion occures here.
2.Bartar System-In that economy goods or services are exchanged for other goods and services without paying money.Here is no cash flow.Previously this method was used in market when there is no currency system in economy.It benefits who are lacking hard currency to obtain goods and services.Suppose I had fixed my neighbour's PC free of cost and he had gifted me perfume being pleased for it,is also notified as Bartar economy.
3.Unpaid Work-This acounts services which are free.There are three types of unpaid labours like-professional,volunteers and homemakers.Suppose a case -we pay our maid payment for working our household works but when she is absent we do all works own then there is no payment for that-this is considered as unpaid work.Many organizations depend on volunteer work for their very existence, and, although such work has considerable value, it is not counted as part of the GDP.
Thus we came to know why few goods are exclude to be counted in GDP.
2. you find that your paycheck for the year is higher this year than last. Does it mean your real income has increased? Explain it with an example-
Real income is an income which refers that amount of goods and services which we can buy today compare to the amount of goods and services that we had bought previous year.Nominal income is the amount of an employee's salary that is paid in cash, whereas real income is the amount the employee receives after accounting for inflation. So the formula of real income=Nominal Income-Inflation Rate.We can see that if my paycheck is higher this year then three situations may happen-1)May be nominal income has increased.2)May be inflation rate has decreased.3)If both increases,increase of nominal income is greater than increase of inflation rate .Following these cases only real income will be increased otherwise not.
3. Identify the immediate effect of each of the following events on U. S. GDP and its components-
a.Social security, welfare, and other transfer payments are not included in government expenditures. We know GDP=C+I+G+X-M.Social Security, Medicare, unemployment insurance, welfare programs and subsidies cannot be included into GDP as these are not payment for goods or services.So in that case also we cannot add Amy's social security check into the US GDP and its components.
b. In that case first it will affect the consumption as Tony buys Italian sport car,as the product is imported the same amount will be deducted from the net export also. Consumption and imports will rise and cancel each other out so that there is no change in U.S. GDP.
c.This increases the investment component of GDP and so increases GDP.In that case I increases so Y also increased.Y=C+I+G+X-M.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.