1) In which of the three market arenas is each of the following goods traded? A)
ID: 1188268 • Letter: 1
Question
1) In which of the three market arenas is each of the following goods traded?
A) U.S Treasury Bonds
B) An Amazon Kindle
C) A Harley-Davison Soft tail motorcycle
D) The business knowledge of Dallas Mavericks%u2019 owner Mark Cuban
E) Shares of Google stock
F) The crop-harvesting abilities of an orangen picker in Florida
2) Explain why imports are subtracted in the expenditure approach to calculating GDP (Gross domestic product)?
3) Go to www. bls.org and click on the links for the state and area employment and unemployment. Look at your home state and describe what changes have taken place in the workforce (in this case California). Has the labor force participation rate gone up or down? Are the state%u2019s experiences the same as the rest of the country? Provide an explanation of why your state%u2019s experiences are the same as or different from the rest of the country?
4) The following questions refer to this table:
Aggregate Consumption Planned
Output/ Income investments
2,000 2,100 300
2,500 2,500 300
3,000 2,900 300
3,500 3,300 300
4,000 3,700 300
4,500 4,100 300
5,000 4,500 300
5,500 4,900 300
A) At each level of output, calculate saving. At each level of output, calculate unplanned investment (inventory change).
What is likely to happen to aggregate output if the economy produces at each of the levels indicated? What is the equilibrium level output?
5) For each of the following, determine whether it is an asset or a liability on the accounting books of a bank. Explain why in each case.
Cash in the vault
Demand deposits
Savings deposits
Reserves
Loans
Deposits at the Federal Reserve
Explanation / Answer
B) An Amazon Kindle
Economic growth is measured in terms of an increase in the size of a nation's economy. A broad measure of an economy's size is its output. The most widely-used measure of economic output is the Gross Domestic Product (abbreviated GDP).
GDP generally is defined as the market value of the goods and services produced by a country. One way to calculate a nation's GDP is to sum all expenditures in the country. This method is known as the expenditure approach and is described below.
Expenditure Approach to Calculating GDP
The expenditure approach calculates GDP by summing the four possible types of expenditures as follows:
GDP
=
Consumption
+
Investment
+
Government Purchases
+
Net Exports
Consumption is the largest component of the GDP. In the U.S., the largest and most stable component of consumption is services. Consumption is calculated by adding durable and non-durable goods and services expenditures. It is unaffected by the estimated value of imported goods.
Investment includes investment in fixed assets and increases in inventory.
Government purchases are equal to the government expenditures less government transfer payments (welfare, unemployment payouts, etc.)
Net exports are exports minus imports. Imports are subtracted since GDP is defined as the output of the domestic economy.
Alternative Approaches to Calculating GDP
There are three approaches to calculating GDP:
These three approaches are equivalent, with each rendering the same result.
Final Sales as a GDP Predictor
Note that an increase in inventory will increase the GDP but possibly result in a lower future GDP as the excess inventory is depleted. To eliminate this effect, the final sales can be calculated by subtracting the increase in inventory from GDP. The final sales can be either larger or smaller than GDP. The change in inventory is an important signal of the next period's GDP.
Nominal GDP and Real GDP
Without any adjustment, the GDP calculation is distorted by inflation. This unadjusted GDP is known as the nominal GDP. In practice, GDP is adjusted by dividing the nominal GDP by a price deflator to arrive at the real GDP.
In an inflationary environment, the nominal GDP is greater than the real GDP. If the price deflator is not known, an implicit price deflator can be calculated by dividing the nominal GDP by the real GDP:
Implicit Price Deflator = Nominal GDP / Real GDP
The composition of this deflator is different from that of the consumer price index in that the GDP deflator includes government goods, investment goods, and exports rather than the traditional consumer-oriented basket of goods.
GDP usually is reported each quarter on a seasonally adjusted annualized basis.
GDP Growth
Countries seek to increase their GDP in order to increase their standard of living. Note that growth in GDP does not result in increased purchasing power if the growth is due to inflation or population increase. For purchasing power, it is the real, per capita GDP that is important.
While investment is an important factor in a nation's GDP growth, even more important is greater respect for laws and contracts.
GDP
=
Consumption
+
Investment
+
Government Purchases
+
Net Exports
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.