Michael Parkin
ISBN #9780133872279
12th Edition
839 Questions
Homework Questions
GDP measures the market value of all final goods and services produced in a country over a specific time period and is central to assessing economic performance. It is calculated via either the expenditure or income approach, both of which are linked by the circular flow of income. Differentiating between nominal and real GDP is crucial for understanding true economic growth, and while GDP remains a key indicator, it has limitations by excluding nonmarket activities, environmental quality, and leisure, prompting debates on alternative measures of economic well-being.
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CONCEPT
DEFINITION
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Classify the following items as a final good or service or an intermediate good or service and identify each item as a component of consumption expenditure, investment, or government expenditure on goods and services: $\cdot$ Airline ticket bought by a student. $\cdot$ New airplanes bought by Southwest Airlines. $\cdot$ Cheese bought by Domino's. $\cdot$ Your purchase of a new iPhone. $\cdot$ New house bought by Bill Gates.
The following figure illustrates the circular flow model. During $2014,$ flow $A$ was $\$ 13.0$ trillion, flow $B$ was $\$ 9.1$ trillion, flow $D$ was $\$ 3.3$ trillion, and flow $E$ was $-\$ 0.8$ trillion. Calculate (i) GDP and (ii) Government expenditure.
Use the following data to calculate aggregate expenditure and imports of goods and services. $\cdot$ Government expenditure: $\$ 20$ billion $\cdot$ Aggregate income: $\$ 100$ billion $\cdot$ Consumption expenditure: $\$ 67$ billion $\cdot$ Investment: $\$ 21$ billion $\cdot$ Exports of goods and services: $\$ 30$ billion
The table in the next column lists some national accounts data for the United States in 2008 a. Calculate U.S. GDP in 2008 . $$\begin{array}{lr} \text { Item } & \text { Billions of dollars } \\ \hline \text { Wages } & 8,000 \\ \text { Consumption expenditure } & 10,000 \\ \text { Other factor incomes } & 3,200 \\ \text { Investment } & 2,000 \\ \text { Government expenditure } & 2,800 \\ \text { Net exports } & -700 \\ \text { Depreciation } & 1,800 \end{array}$$ b. Explain the approach (expenditure or income) you used to calculate GDP.
Tropical Republic produces only bananas and coconuts. The base year is 2013 , and the table gives the quantities produced and the market prices. $$\begin{array}{lcc} \text { Quantities } & 2013 & 2014 \\ \hline \text { Bananas } & 800 \text { bunches } & 900 \text { bunches } \\ \text { Coconuts } & 400 \text { bunches } & 500 \text { bunches } \\ \text { Prices } & 2013 & 2014 \\ \hline \text { Bananas } & \$ 2 \text { a bunch } & \$ 4 \text { a bunch } \\ \text { Coconuts } & \$ 10 \text { a bunch } & \$ 5 \text { a bunch } \end{array}$$ Calculate nominal GDP in 2013 and 2014