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ECONOMIC INDICATORS - Essay Example

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Intermediate goods: All goods that are used by the producer to produce some other goods are known as intermediate goods. These goods are just used as a value addition to the primary product, such goods are usually called as raw material or the semi-finished goods too…
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ECONOMIC INDICATORS
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Download file to see previous pages Thus, intermediate goods are those which are traded from one industry to another either for reproduction of a final good or for the resale of the value added goods. Since GDP calculated the final value of all the goods and services in a year so, intermediate goods are not accounted for calculating GDP (SURI, 2013). Final Goods: Final goods as term justifies refer to finished product which are available in the market for consumption purposes by individuals or for investment purposes to yield profit. Unlike intermediate goods, final goods are solemnly produced for their own sake because final goods are the ultimate output of all factor implied for production. Final good is the product which is calculated in Gross Domestic Product of the country. Final goods can further be classified into two categories which are consumer goods and producer goods. Final good become consumer goods when it is bought by a customer for his/her domestic usage, this customer good can be durable, semi-durable and sometimes perishable but final goods which serve purpose of reproduction are called capital goods and they are solemnly durable and in turn adds to country’s capital stock. Capital goods comprise of machines, vehicles, building material, electronics and refrigerators etc. so, all such capital goods can be further used for capital accumulation while consumer goods only give utility (Varun, 2013). Intermediate goods and final goods can be distinguished easily. A commodity can be both intermediate and final at the same but its distinction rely upon its usage. Suppose if meat is used by a household then it’s a final good but if meat is used for making meat burger then it is an intermediate good. 2. True/False Statements. Indicate if the statement below is “True or False”. You must support your answer with a few sentences for each statement. a. Government expenditure is the largest single category of GDP. It is evident from theory that GDP includes Consumption, Government Spending, Investments and Net Exports (GDP= C+G+I+Xn). While increase in government spending leads consumption as demand increases with income, consequently investments increases and trade take place. So, it is true that government expenditure is the largest category of GDP. b. Nominal GDP uses current market prices and real GDP measures GDP using base-year prices. Above statement is true because nominal GDP includes all of the changes in market prices that have occurred during the current year due to inflation or deflation. Real GDP is evaluated at the market prices of some base year to analyses the actual growth of economy. c. GDP increases if you purchase General Motors stock. True because any purchase from the domestic industry adds to the sum of goods produced within the border of the country and thus the GDP increases. 3. Define the natural rate of unemployment. Identify three factors that may cause the natural rate to change over time. Natural Rate of Unemployment exhibits the equilibrium between aggregate supply of labor with the aggregate demand of labor. It is the point of unemployment where real wages equate the free market level and employment beyond this point is not possible. Natural rate of unemployed is said to be the point where all individuals willing to work are employed at the prevailing real market wage rate (Riley, 2012). In other words NRU is assumed to be the lowest rate of unemployment that an economy can withstand in the long run besides at this point ...Download file to see next pagesRead More
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