American Highschool Academy Gross Domestic Product & Nominal Value Questions

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american highschool academy

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Questions are on the document, only 3 questions.

Deals with GDP and nominal value.

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1. "The total volume of business sales measured in monetary terms in most economies is several times larger than the real GDP of the economy examined." Is this statement true or false? Explain your answer in a couple of sentences. 2. The GDP (in nominal terms) for Australia is $1,500.26 billion, while that of Brazil is $2,138.92 billion. Given that GDP is a measure of what is produced in a country, and is used to evaluate well-being in a country, are Brazilians better off than Australians? Explain your answer. One word answer is not enough. (Data from http://statisticstimes.com/economy/projected-world-gdp-ranking.php) 3. Calculate all six of the national income accounts. Personal consumption expenditures Federal government purchases of goods and services State and local government’s purchases Gross private domestic investment Proprietors’ income Compensation of employees/wages Corporate profits after taxes Corporate profit taxes Rental income Depreciation Indirect business taxes (taxes on production and imports) Net interest Exports Imports Undistributed corporate profits/retained earnings Transfer payments Personal income taxes Social Security taxes (Social Insurance taxes) Statistical discrepancy Net factor earnings from abroad $ 1,750 351 331 412 150 1,851 188 23 346 295 146 147 299 375 111 66 72 222 15 100 Follow the formulas in table 6.2 and 6.3 or follow the example in the first document posted in this folder - and calculate the national income accounts for the country above. (Calculate GDP, GNP, NNP, NI, PI and DI). SEE ATTACHED DOCUMENT FOR THIS QUESTION Complete the assignment from the expenditure side. (Hints: don’t forget government expenditures include all levels of government expenditures. If you complete the calculations from the income side: Add to Corporate profits = corp. profits before taxes (includes corporate profits after taxes+ corporate taxes); proprietors’ income should be included in income from the income side, if the data is given separately). Each category should only be used once in the calculations.) Chapter 6 national income accounting Gross domestic product is a basic measure of macroeconomic performance. This chapter identifies the component parts of GDP and describes their significance — personal consumption expenditures, gross private domestic investment, government purchases, and net exports. The circular flow of goods, services, and resources and the circular flow of money are used to show how gross domestic product can be viewed as either flows of expenditure on newly produced final goods and services or as equivalent flows of money income to people who provide the resources used to produce goods and services. These two views of GDP are represented by the expenditure approach and the income approach to measuring GDP. The data generated by national-income accounting is used to track the economy’s performance. This chapter provides a framework on which future chapters will build. The three questions that are to be kept in mind while reviewing the chapter are: 1. How much income is being produced? What is it being used for? 2. How much income is being generated in the marketplace? 3. What will happen to prices and wages? Remember: GDP vs. GNP GNP refers to output produced by American-owned factors regardless of location. GDP refers to output produced within America’s borders. GDP is geographically focused, including all output produced within a nation’s borders regardless of whose factors of production are used to produce it. GDP measures production in dollar terms. Nominal GDP – The value of final output produced in a given period, measured in the prices of that period (current prices). Real GDP – The value of final output produced in a given period, adjusted for changing prices. Gross private domestic Investment- depreciation=net private domestic investment Corporate profits= retained earnings + corporate taxes + dividend Investment = Expenditures on (production of) new plant, equipment, and structures (capital) in a given time period, plus changes in business inventories. Wesley Clair Mitchell (1874-1948) furthered the development of index numbers as part of a broader effort to gather statistical data and improve economists’ ability to assess economic well-being. Mitchell believed that improving the available data was necessary if economic science was to advance in a meaningful way. As Mitchell expressed it, "Economics will develop more fruitfully in the future upon the quantitative side. The economists of today stand the best chances of improving upon the work of their predecessors if they rely more and more upon the most accurate statistical recording of observations." (1) Born in Russville, Illinois, the son of Civil War Army doctor turned farmer, Mitchell earned his Ph.D. at the University of Chicago in 1899. While Mitchell had a distinguished career as a teacher and researcher at the University of Chicago, University of California, Columbia University, and The New School of Social Research, Mitchell’s greatest contribution came when he founded the National Bureau of Economic Research (NBER) in 1920, where he served as the Director of Research from 1925 to 1945. The bureau still operates today, providing valuable data and studies for economists and policymakers. Nominal GDP – The value of final output produced in a given period, measured in the prices of that period (current prices). (Current output at current prices.) Real GDP – The value of final output produced in a given period, adjusted for changing prices. (Current output*base year prices.) Watch YouTube video on calculating GDP ( http://www.youtube.com/watch?v=yUiU_xRPwMc) Watch YouTube video (http://www.youtube.com/watch?v=QiNZdGAZzeAon) on the difference between GDP and GNP. http://www.businessinsider.com/deutsche-bank-hurricane-sandy-on-gdp-2012-11 National income accounting: http://www.youtube.com/watch?v=beyOEvMKK48 GDP: http://www.youtube.com/watch?v=LzriizHyYhs Calculating real and nominal GDP: http://www.khanacademy.org/science/macroeconomics/gdptopic/real-nominal-gdp-tutorial/v/real-gdp-and-nominal-gdp VERY IMPORTANT!!!!! A. B. C. D. E. Three Ways to Compute GDP Economists use three approaches to compute GDP—the expenditure approach, the income approach, and the value-added approach. What GDP Omits Some exchanges that take place in an economy are not included in GDP. These include some nonmarket goods and services, legal and illegal underground activities, sales of used goods, financial transactions, government transfer payments, and leisure. GDP is Not Adjusted for Bads Generated in the Production of Goods Some economists argue that GDP overstates our overall economic welfare, since it does not net out bads. Per Capita GDP Per capita GDP is found by dividing a country’s GDP by its population. Is Either GDP or Per Capita GDP a Measure of Happiness or Well-Being? GDP figures are useful for obtaining an estimate of the productive capabilities of an economy, but they do not necessarily measure happiness or well-being. SOLVED PROBLEM. Nominal and Real GDP. In this exercise, you calculate nominal and real GDP for a simple economy. You then calculate real GDP using a base year Suppose than an economy consists of only two types of products: computers and cars. Sales and price data for these two products for two different years are as shown below: year No. of Computers Sold 2001 5000 2012 10000 Price per Computer $6,000 $2,000 No. of cars 1000 5000 Price per car $12,000 $20,000 Nominal GDP in any year is calculated by multiplying the quantity of each final product sold by its price and summing over all final goods and services. Assuming that all computers and automobiles are final goods, nominal GDP in 2001 is= 5000*$6,000+1,000*$12,000 = 30,000,000+12,000,000= 42,000,000 nominal GDP in 2012 is= 10000*$2,000+5,000*$20,000 = 20,000,000+ 100,000,000= 120,000,000 If 2012 is the base year REAL GDP in 2001 is: 5000*$2,000+1,000*$20,000=10,000,000 +20,000,000 = 30,000,000 Real GDP in 2012 is= 10000*$2,000+5,000*$20,000 = 20,000,000+ 100,000,000= 120,000,000 In words: the value of cars and computers sold (nominal GDP/current GDP) at 2001 prices in 2000 was $42 million and in 2012 at 2012 prices was $120 million. The increase was caused by more of both items sold, while the price of cars increased, the price of computers decreased. To make the data for the two years comparable, real GDP is calculated. The real GDP in 2001 was $30 million, that is, had the products been sold at 2012 prices this is the revenue that would have been earned. Thus we know that between 2001 and 2012 production increased from $30 million to $120 million showing the increased quantity of both goods sold. Table 6.3 from the textbook –national income accounts Table 6.3 From GDP to Disposable Personal Income GDP, a measure of total output, equals GDI, the total income generated in the production of goods and services in an economy. The chart traces the path from GDP to disposable personal income, which equals the income households actually receive. GDP= C+I+ G (all levels of Government) + exports- imports GDP + net factor earnings from abroad = gross national product (GNP) GNP − depreciation (consumption of fixed capital) = net national product (NNP) NNP − statistical discrepancy = national income (NI) NI − income earned but not received [e.g., taxes on production and imports, social security payroll taxes, corporate profit taxes, and retained earnings] + transfer payments and other income received but not earned in = personal income (PI) the production of GNP Or simply put…… [NI - corporate profit taxes – undistributed corp. earnings (retained earnings) - Social security taxes + transfer payments] =Personal income PI − personal income taxes = disposable personal income (DPI)
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Explanation & Answer

Hi, here is your assignment :). let me know if you ave any questions okay :)

1. "The total volume of business sales measured in monetary terms in most economies is
several times larger than the real GDP of the economy examined." Is this statement true
or false? Explain your answer in a couple of sentences.
This statement is false, since, the GDP excludes intermediate transactions. Hence, we
could not tell that the total volume of business sales measured in monetary terms in most
economies. GDP takes the final transaction values or the Gross Domest...


Anonymous
Excellent! Definitely coming back for more study materials.

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