What is the GDP for this economy? What is the GNP for this economy? What is the

Question

What is the GDP for this economy?

What is the GNP for this economy?

What is the NNP for this economy?

moer or goous and services produced each year? Wh y isn't the CPI a useful measure of your cost of 6. living? Use the following national income accounting information to answer exercises 7-11: on to answer exercises Consumption Imports Net investment Government purchases Exports Capital consumption allowance Statistical discrepancy Receipts of factor income from the rest of the world $400 $10 $20 $100 $20 $20 $5 $12 Payments of factor income to the rest of the world $10 You can find further practice tests in the On

Explanation / Answer

6) The CPI is an accurate measure of selected goods as it uses fix basket of goods. But it is not a good measure of the cost of living for following reasons

1) Substitution bias- If relative price changes, people changes their basket by substituting expensive goods with cheaper goods, but CPI does not include this changes in its calculation. The CPI overstates the increase in the cost of living by not including this changes.

2) introduction of new goods- The basket in CPI calculation does not reflect the change in purchasing power by the introduction of new goods.

3) Unmeasured quality changes- The value of the dollar depends on the quality of goods. Value of dollar rises if the quality of goods rises. The value of the dollar falls if the quality falls, even if the prices stay same. But the CPI does not reflect this changes in quality.

So CPI overstates the true cost of living so CPI is not a good measure of the cost of living.

7) GDP=consumption+net investment+government purchases+(Export-import)

=400+20+100+(20-10)

=$530

GNP=GDP+(Receipts of factor income from the rest of the world-payments of factor income to the rest of the world)

530+(12-10)

=$532

NNP=GNP-(statiscal discrapancy+capital consumption allowance)

=532-(5+12)

=$515

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.