Running Head: MACROECONOMICS Macroeconomics Name of the Student Name of the University

MACROECONOMICS MACROECONOMICS 1 1 Running Head: MACROECONOMICS Macroeconomics Name of the Student Name of the University Author note Answer 1 2 Answer 2 2 Answer 3 3 Answer 4 3 Answer a 3 Answer b 4 Answer c 4 Answer d 4 Answer e 4 Answer 1 Real GDP is a representative measure of goods and services in the economy. As GDP incorporates almost all the quantitative aspects of economy’s output it is considered as the best single measure of

Running Head: MACROECONOMICS
Macroeconomics
Name of the Student
Name of the University
Author note

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Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................2
Answer 3..........................................................................................................................................3
Answer 4..........................................................................................................................................3
Answer a......................................................................................................................................3
Answer b......................................................................................................................................4
Answer c......................................................................................................................................4
Answer d......................................................................................................................................4
Answer e......................................................................................................................................4

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Answer 1
Real GDP is a representative measure of goods and services in the economy. Real GDP is
a more accurate measure of aggregate output as it is an inflation adjusted measure of output. A
higher real GDP of US today as compared to that in 60 years ago implies that monetary values of
goods and services today is higher than 60 years back. This however does not provide any deep
insight about well-being as higher real GDP might be resulted from an increase in population or
technological advancement. It tells nothing about well-being of people in US. Neither does it
indicate anything about availability of basic necessities in the nation.
GDP is a quantitative measure. It therefore excludes qualitative aspects of life like
happiness, status of health and education. It also does not indicate distribution of income.
Exclusion of informal market, overestimation of externalities are some other limitation of GDP.
Despite the limitations, GDP is considered as the single best measure of economy’s well-
being. It represents sum of all the goods and service produced that the economy produces. It
measures total income and total expenditure of the nation. As GDP incorporates almost all the
quantitative aspects of economy’s output it is considered as the best single measure of
economy’s well-being.
Answer 2
Intermediate good is defined as the goods or services that are used to produce finished
products used in final consumption. One industry sells these goods to other industries either to
resale or to produce some other goods.

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The difference between intermediate and final goods is not based on the nature of the
product itself but it is based on use of the products. A commodity can be treated as an
intermediate good as well as a final good depending on nature of its use. The value of
intermediate goods are computed using value added approach where added values to each stage
in the production of final goods are calculated.
The values of final goods that are used to compute GDP included the values of
intermediate goods as well. In order to avoid the problem of double counting, values of
intermediate goods produced and sold in the accounting year is not directly included as part of
GDP. The case is however different if the produced intermediate goods are not sold. It then adds
to the account of inventory investment. If inventory investments are not included then GDP will
be underestimated.
Answer 3
Some final goods and services are not included is GDP. GDP does not include the
products which are difficult to quantify. These items include services that individual performed
for their families and themselves. Most of these goods do not enter the market as production and
consumption take place at home. Additionally, GDP also excludes illegal products.
Answer 4
Answer a
GDP=Consumption+ Investment +Government purchase+Net export
¿ $ 3311+ $ 1999+ $ 1975−$ 32
¿ $ 7253

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Answer b
Consumption(C )=Purchase of durable∧non durable goods+ purchase of service
¿ $ 1293+$ 1717+$ 301=$ 3311
Answer c
Investment (I )=Purchase of new housing+ Purchase of capital equipment + Inventory changes+Purchase of new s
¿ $ 704+$ 310+$ 374+ $ 611=$ 1999
Answer d
Government Purchase (G)=salaries ¿ government workers+ government expenditure on public works
¿ $ 1422+$ 553
¿ $ 1975
Answer e
Country A’s export in 2010 were $88
Country A’s import in 2010 were $120
Net Export(NX )=Export−Import
¿ $ 88−$ 120

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¿−$ 32