Gross Domestic Product- PDF
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Added on 2021-06-15
Gross Domestic Product- PDF
Added on 2021-06-15
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Running Head: MacroeconomicsTask 6Part 1Gross Domestic Product (GDP) measures the country’s economy. It represents the monetary value of everything produced within the country’s boarders by both citizens and foreigners. The period for estimation of GDP is usually a year. An intermediate good is a finished good that manufacturers purchase as an input for producing other finished goods (it’s also a finished good). These goods are excluded from the measure of GDP to avoid the issue of double counting. Cement can be used as both an intermediate good for housing activities depending on the demand for housing, it’s an intermediate good when used for housing, but it’s afinished good when it’s not used. When it’s used, the finished good is the built house.Part 2: The final goods and services in this case are Ipods, cars and legal services; steel is an intermediate good and will be excluded from the GDP estimation. Now we calculate the value ofeach by multiplying price by quantityThe value of Ipods = $300 * 5000 = $1,500,000The value of Cars = $25,000 * 500 = $12,500,000The value of Legal services = $2000 * 100 = $200,000To calculate GDP we add up the valuesGDP = 1,500,000 + 12,500,000 + 200,000 = $14,200,000The GDP of this simple closed economy is $14,200,000Part 3: This person is unemployed because the person does not have a job, is actively seeking, and is available for a job (Abs.gov.au, 2014). The person is structurally unemployed such that even if there were job opportunities, he/she would remain unemployed.Part 4: This person should be considered employed because he/she has completed at least an hour of works that was paying during the survey week (Lewis, 2017). 10 hours are much for one to be considered employed.
Macroeconomics2Part 5: Unemployment is that proportion of the labor force without jobs, actively seeking, and available for a job (Amadeo, 2018). The total population = unemployed + employed + those not in labor force = 500+8000+4000 = 12500. Labor force = Employed + unemployed = 8000+500 = 8500. Unemployment rate = unemployedlaborforce = 5008500∗100 = 5.88%. Participation rate = Laborforcetotalpopulation= = 850012500∗100 = 68%.Part 6: Basket’s cost in 2005 = PQ= PQ Computers + PQ Books + PQ Burgers= (1700*2) + (25*50) + (1.00*150) = $4800Basket’s cost in 2015 = PQ= (1200*2) + (30*50) + (2.00*150) = $4200CPI 2005 base year = 48004800∗100=100%CPI 2015 base year = 42004800∗100=87.5%Following an explanation by Jan (2015), there was a decrease in CPI meaning that the cost of living in 2015 was lower than that in 2005. The price decreased by 12.5%.Task 7Part 1: The first reason for downward sloping of AD curve is Pigou's wealth effect where a reduction in price makes consumers wealthier and their spending increase. The second reason is Keynes's interest-rate effect where consumers demand money depending on the price level. A lower price induces consumers to save more as less money is required to make purchases. More saving increases the supply of loan driving down the interest rate and consequently an increase inaggregate demand. Thirdly, Mundell-Fleming's exchange-rate effect where AD rises as net export rise being stimulated by lower domestic interest rate resulting from falling prices.Part 2: Pessimism will lower the aggregate demand since people will change their consumption to be lower so as to enable them to save some income that they will be able to make demand during
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