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Business Economics
What does GDP measures? Why is it important?
GDP measures the total monetary value of ultimate goods and services produced with a given countries boundary in a given period of time. It is important as it provide information concerning the size and performance of the economy.
Why does GDP measures market value rather than something more stable like weight or quantity?
It because GDP deal with monetary measurement, therefore it measures prices but not quantity or weight.
How are intermediate accounted for in GDP?
The value of intermediate is accounted for in GDP using value added method.
Is it important to be précised about time when calculating GDP? Why or why not?
Yes. To identify changes in growth rate and size of the country’s economy.
Describe something that would be included in U.S GNP but not U.S GDP.
Companies of U.S residents producing goods for export, GNP accounts for all output of domestic resident which includes all activities that happen outside the country but GDP only consider activities within the country’s boundary.
Define and give examples of consumption spending, something not in the text.
Consumption spending is the cost of goods and services purchased by the households to satisfy their needs and wants. Examples of consumption spending include purchase of food staffs, clothing, furniture, vehicles and utensils.
Define and give example of investment spending, something not in the text.
Investment spending refers to money spent on capital goods with the hope that the incurred will produce long term benefits. Examples of investment spending include purchase of machinery, land or investing in infrastructure.
Define and give example of government spending, something not in the text.
Government spending is money spent by the government in different sector to acquire goods and provide services to the public. Examples include spending on health care insurance, national defence, debt interest and social security.
Define and give examples of net export spending, something not in the text.
Net export spending is amount spend on total trade. Example includes export and import of goods and services.
If a ten year old used car is sold in the year when you are calculating GDP. How do you account for it? Explain your answer.
It will be accounted in GDP in the form of sells commission and service provides during the period of GDP time. It does not account directly because it was included in GDP the year it was originally produced.
What is the difference between expenditure and income approach to measuring GDP?
Expenditure approach measures the money spent on goods and services while income approach measures income approach measures the income that resulted from the production of goods and services.
Which GDP measurement approach is good for accounting for partly finished goods? How does it work?
Value-added approach. According to this approach GDP is equal to the value of all goods produced in all sectors subtract the value of all purchased intermediate goods for production. The gross value of output from domestic activity is estimated first then intermediate consumption is determined.
If normal GDP increases from year to year, does that mean your economy grew? Explain.
No. it might reflect an increase in price rather than increase of goods and services. The rise of prices cause inflation with has a negative effect on the growth of economy.
Explain how GDP deflator is and how it is calculated.
GDP deflator is a price index that measures inflation and deflation in the economy. It measures all prices of all domestic goods and services produced in the country. It is calculated by computing the ratio of normal GDP to real GDP.
What are some things (economic or non-economic) that are important to a society that are not measured in GDP?
Sales of goods produced outside country boundaries, sales of used goods, payment of transfer by government, black-market.
Explain how the unemployment rate is calculated
The unemployment rate is calculated by computing the ratio of the total number of youth unemployed to the corresponding labour force which is the sum of total person employed and unemployed in a specific country or group of interest.
What do you think is the worst kind of an employment? Explain.
Structural unemployment is the worst because it is caused by more natural causes that may be permanent in nature. Its effects take time to last.
What does the natural rate of unemployment mean? Can we expect this rate to be zero? Why or why not?
Natural rate of unemployment is the lowest rate of unemployment that economy support and the baseline over which unemployment cannot cross. Natural unemployment rate cannot be zero because even at the point when the economy of the country is healthiest there will still be level of unemployment.
What is the relationship between production and employment?
The rate of production affects employment where by when production increase in a given firm it gives a chance to increase employment which in turn reduce unemployment rate.
What might be the positive and negative impacts on an increase in the minimum wage?
Increasing minimum wages increases work productivity because of reduced employees’ turnover as morale of workers is likely to increase. In return it promotes the economy growth. On the other hand increasing minimum wages can result into labour market competition. It can also lead to increase on prices of products as the increase in minimum wages could cause increase in wages and salaries which makes the firm to incur increase in expanse.
Currently, the U.S unemployment compensation is less generous than in most European countries. Do you think U.S compensation should be made more generous? Explain the pros and cons of your answer.
U.S should not be more generous in compensation to unemployment. As much as the compensation provide individuals with income security as they search for employment increasing it may people may become idle choosing to depend on compensation rather than productive employment
Why would the economist have an interest in dividing real GDP by population?
The economist would have an interest in dividing real GDP by population because of the difference in currency among the population they are dealing with and the varying number of people in given countries.
Draw a graph and explain what a Gini coefficient is and how it is calculated
Gini coefficient is a statistical measure of dissemination that is used to calculate economic inequality in a given population. It calculated by identifying the area below the perfect equality line subtract the area below the Lorenz curve over area below the line of perfect equality.
What does labour productivity have to do with economic growth?
To sustain long term economic growth, one need to increase labor productivity, therefore increase in labor productivity improves economic growth.
What are some ways you have increased your human capital?
Ways of increasing human capital include, get more education which will increase experience, automate finances, improve human networking, publishing thoughts and starting early when investing.
What is the difference between renewable and non-renewable resources? Give examples of each.
Renewable resources are resources that can be renewed once used example include sunlight, water, forest while non-renewable resources are resources that cannot be renewed once used example include petrol, coal, nuclear energy and natural gas.
What do you think will happen to an economy if technological knowledge stopped increasing?
Stopping increase in technology knowledge will negatively affect the economy as technology promotes productivity whereby more products are produced on a short period. At the same time unemployment rate will reduce as by technology manpower is less required at work.
What do you think will happen to an economy if no one becomes an entrepreneur?
Economy without entrepreneur is likely to deteriorate as entrepreneur introduces innovative products and services which in turn promote the growth of the economy.
What is economic growth? What effect does it have on LRAS and PPE graph
Economic growth is an increase in production of country’s goods and services over a given period of time. Increase in economic growth makes LRAS curve to shift to right and PPE curve to shift to left.
Imagine you want to start a new business, but need money. Explain some ways you could get the money you need.
One can acquire money to start a business through selling of available assets for cash, using credit cards in purchasing commodities to lunch the business, borrowing loan from bank, a retired person can use amount in retirement account and finally microloans which is offered through community-based intermediary lending groups.
What do you think will happen to an economy that completely stopped investing?
Local industries are likely to collapse, which may increase unemployment rate that in turn the economy of the nation will be negatively affected.
How could government spending on highway increase economic growth?
Highways improve accessibility of various services and goods: business easily provide goods and services while people easily access goods and services available. Highway also reduces cost of transport therefore improving economic growth.
What problems could result if a nation gets all of its investments from foreign savers?
Depending on foreign investment cause the local industry to fall due to lack of market.
How could public education increase economic growth?
Education promotes people understanding of the global requirement on economic growth. It raises the level of creativity and productivity which promote advancement in technology and entrepreneurship therefore improving the economic growth of the country.
What might need to happen to cause Americans to increase personal savings?
Increasing the interest rate, taxation exception, improving of proportion of labor remuneration in national income and considering demographic factors increases personal savings.
Do you think any short-term problem would occur if American increased their personal savings? Explain
Yes. There is possibility of fall in consumer spending that might lead to recession. Failure of consumer in spending result to continuation in economic stagnation.
Government budget deficit are possible cost of economic growth policies. What is wrong with running budget deficits? Is it really a problem at all?
Running budget deficits influence capital structures and interest rates, reduces net rate and lead to increase in taxation and inflation. Therefore it is a problem to the economy.
How do you feel about America’s current balance between environmental protection and economic growth? Should it be changed one way or the other? Explain.
Some policy of environmental protection neglect economic growth. Example banning of offshore oil drilling activity in Arctic region prevent economic development as energy development in the region is massive.
Explain green accounting?
Green accounting is the accounting that tries to identify environmental costs into the financial results of operation. The main objective of green accounting is to evaluate environmental costs and benefits, analyst maintenance of environmental tangible resources and measure the indicator of products and income from environment.
What is the relationship between the work/leisure and the strength of the economy?
Leisure positively influence labor productivity hence strengthening economy however when limit is exceeded in negatively affect labor productivity which in turn weaken economy.