(1) Simple Issues with Measuring GDP Suppose the economy consists of 2 people. P

Question

(1) Simple Issues with Measuring GDP Suppose the economy consists of 2 people. Person 1 produces 1 unit of goods each period which is split between the 2 people. (a) What is per-period real aggregate GDP? b) What is per-capita real GDP in each period? (c) Suppose now that 20 percent of each period's production is saved for later i.e. not consumed). What is aggregate GDP? What is per-capita GDP? Assume the saved goods neither go bad nor earn interest (i.e. the rate of return on saving equals zero).

Explanation / Answer

Real GDP is 1 unit of goods which is produced by product method. By expenditure method=0.5+0.5=1 unit GDP includes goods produced

B 1/2=0.5.per capita means per individual. There are two people and output is 1.Real gdp=output/population

C Aggregate GDP remains same. Consumption is equal to invest in national income accounting. Alternatively saving comes from income. And by income method gdp remains 1.

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