Measurement of Economic Growth - Essay Example

? MacmidIK Lecturer: MacmidIK D – Opportunity cost 2. A – Total output and the general level of prices in the economy 3. C – Atrade deficit of 20 billion dollars will harm the economy 4. D – An auto plant 5. D – 650 6. C – 200 7. A – Illustrates a trade-off between tanks and autos 8. A – Attainable and resources are fully employed 9. C – Opportunity cost increases as the production of goods increases 10. B – A straight down sloping line 11. A – Lower unemployment 12. A – Alpha will experience greater economic growth than Beta 13. B – More will be demanded at lower prices 14. A – Income 15. B – A decrease in the price of a substitute product. 16. B – A technological change in the production of the good 17. C – An increase in the taxes paid by telephone companies 18. B – Inelastic 19. A – Generally results in substantial negative externalities 20. D – A surplus of 600 units 21. C – $20 And 600 units 22. D – using private bargaining when property rights 23. A – eliminate all pollution rights 24. B – changes only when there is change in out put 25. A – real GDP doubles 26. C – Nominal GDP and real GDP both decreases 27. A – Family will need to spend more in order to maintain its standard of living 28. C – Nominal GDP divided by real GDP 29. B – 110 30. C – Couples remodelling their own homes 31. A – 1 and 2 32. D – Stable political system 33. B – Movement from a point inside to a point outside the production possibility curve 34. B – 6 percent 35. B – Cyclical 36. C – Frictional 37. C – Is equal to the total frictional and structural employment 38. D – Actual GDP is greater than potential GDP 39. B – Actual GDP is less than potential GDP 40. A – Every 1 percent that the actual employment exceeds the natural employment rate, a 2 percent GDP gap is created 41. A – 4.0 Percent 42. C – Demand-pull inflation 43. C – Cost push inflation 44. A – Increases by 3% 45. C – Debtors are hurt, but creditors benefit. 46. B – Average propensity to consume is 75 47. B – 9 48. C - 8 49. A – 1 50. D – Shift the investment demand curve to the right 51. C – Increase by 16% 52. D – Less than full-employment GDP 53. A – Increase by $50 billion 54. B – Real GDP will increase 55. C – 280 billion 56. D – An increase in real interest rates. 57. A – Productivity 58. D – 4 59. C – 3 60. A – Supply increase Short Answers 1. a) Making necessary computation to complete the table below Year 1 Year2 Labour force 95,450 108,250 Employed 90,325 100,830 Unemployed 5,125 7,420 Unemployment rate (10%) 94% 94% Unemployed= Labour force-employed Year 1=95450-90325= 5,125 Persons Year 2= 108,250-100,830=7,420 persons Unemployment rate = number of employed people ? Labour force?100 Year 1 = 90,325?95,450?100 =94% Year 2 = 100,830 ? 108,250?100 =93% b) Possibility of increase in employment and unemployment between year 1 and 2 Based on the above computation, it can be scrutinized that there was an increase in number of employed and unemployed people between the two periods. This is because there is a possibility of having both favourable and unfavourable economic conditions leading to an increase in number of employed and unemployed people (Taylor, 2007). The above assertions may be substantiated by Keynesian theory of economics that holds that a trade off exists between unemployment and inflation, this trade off may be presented using Philips curve (Tucker, 2011), whereby, during favourable economic conditions, inflation decreases while employment increases (Tucker, 2011). On the contrary, during unfavourable economic conditions, inflation rates decrease while unemployment increases (Tucker, 2011).Therefore, based on the above discussion, it is possible to have both increase in employments and unemployment between the two periods. In above connection, an increase in unemployment may be attributed to technological advancement. This is so because most people get laid off as less human labour is needed (Layard, Nickell and Jackman, 2005). Additionally, economic down turn may lead to an increase in unemployment as many companies affected by poor economic conditions tend to lay down workers. Inability of the companies to create jobs even during favourable economic condition may lead to an increase in unemployment (Tucker, 2011). 2. Measuring economic growth Economic growth may be measured in terms of both real growth domestic product and nominal gross domestic whereby nominal and real GDP are taken as a percentage (Barro and Sala-i-martin, 2003). Connectively, economic growth may be measured in terms of percentage in gross national product or gross domestic product (Eraydin, Fingleton and Paci, 2003). When computing economic growth, it is important to take into account per capita income in order to determine the people’s standard of living (Eraydin, Fingleton and Paci, 2003). Additionally, both real and nominal GDP should factor in the changes in inflation rates in order to determine the actual economic growth (Eraydin, Fingleton and Paci, 2003). Poorer countries were not designated to be as such because they have an opportunity to reduce or deal with poverty. Poorer countries may achieve growth by taking measures which can help them eradicate poverty (Tucker, 2011). Some of those measures may include: using the available resources productively to make more wealth, reducing consumption expenditure as well as avoiding foreign debts that may expose an economy to payments of substantial foreign debts (Tucker, 2011). Additionally, poor countries should practice health politics that promote their growth. The above factors may help the economy to become wealthy and even catch up with rich countries (Tucker, 2011). In above connection, countries should focus on measures of eradicating poverty. Some of the factors that poor economies may implement include: countries should be able to put measure in place to eliminate desertification problems. This is because desertification may make populace experience hunger and, consequently, making a country become poorer (Eraydin, Fingleton and Paci, 2003). Therefore, if an economy is able to deal with the problem of desertification, it is easier for an economy to reach prosperity (Eraydin, Fingleton and Paci, 2003). Connectively, poor countries should put measures in place to curb hunger as well as poverty. This may be done by employing limited economic resources to create wealth and become economically productive (Eraydin, Fingleton and Paci, 2003). Additionally, brain drain was reported to increase poverty because poor countries inject a lot of financial resources to train their people who end up working in foreign countries and create more wealth there (Tucker, 2011). Therefore, poor countries should try to can overcome this problem by expanding there industries that can create jobs for their trained workforce (Eraydin, Fingleton and Paci, 2003). Additionally, poor countries should stop inter tribal wars that may cause them lag behind in development (Tucker, 2011). This may be achieved through peaceful campaigns to promote fruitful coexistence among the citizens (Eraydin, Fingleton and Paci, 2003). This may help encourage foreign investments that may create job opportunities for citizens in the poor countries (Tucker, 2011). 3. a) C=CO+MPC (Yd) Yd=GDP-Tax 25+0.75(300) =$250 300-250=$50 300+50=$350 GDP will by $50million b) 40+0.75(300)=265 300-265=$35 300+35=$335 GDP will increase by $35millions c) 20+0.75(300) 300-245=$55 355 GDP will increase by $55millions 4. a) The inflation rate between year 1 and year 2 will be as follows Inflation rate= (current year GDP deflator - previous year GDP Deflator) ?100 =1.17-1.13 =0.04?100 = 4% b) Growth rate in GDP over the period will be as follows Growth rate in GDP = (GDP for the current period ? GDP for the previous period – 1) ?100 = {(5,672 ?5,514) -1}100 = (0.02865)100 =2.865% References List Barro, R. J. & Sala-i-martin, X. (2003). Economic growth. Cambridge, Mass: MIT Press. Eraydin, A., Fingleton, B. & Paci, R. (2003). Regional economic growth, SMEs and the wider Europe. Aldershot [u.a.], Ashgate. Layard, P. R. G., Nickell, S. J. & Jackman, R. (2005). Unemployment: macroeconomic performance and the labour market. Oxford [u.a.], Oxford Univ. Press. Taylor, J. B. (2007). Principles of microeconomics. Boston: Houghton Mifflin. Tucker, I. B. (2011). Survey of economics. Mason, OH: South-Western Cengage Learning. Read More