Macroeconomics

Review questions Chapters 10&11

Pg221 2,5,8

Pg239 2

Pg 221

#1

Economy as a whole, income must equal expenditure because: Every transaction has a buyer and a seller. The total income of everyone in the economy is measured by GDP. Also the output of goods and services are measured by GDP. This must be balanced and both equal.

#2

The luxury car, if we are assuming the luxury car costs more than the economy car. Gross investment refers to the inputs needed to make the car. We can assume that the luxury car costs more to make, so this is more.

GDP can be calculated several ways but the most common way is the expenditure method and I will try to use this to explain.

The Expenditure method I looked up:

GDP = private consumption + gross investment + government spending + (exports − imports).

#5

The components of GDP are consumption, investment, net exports and inventories.

Consumption - health care, food etc. (60% of total spending).

Investment - Tools, sewing machines, factories. (15-20% of total spending)

Net Exports - This is the value of goods sold to overseas companies, less the value of goods bought from overseas.

#8

The only time higher GDP would be undesirable if it led to a much higher rate of environment degeneration or damage to our ozone that what is currently being unaccepted. So, maybe society can accept a little environment damage to increase GDP by a significant way. However, if the environment damage becomes so great than having a higher GDP may be pointless as the future itself would be at risk for that country.

Chapter 10 Summary:

Chapter 10 starts off with income and expenditure. To summarize what that is: Is that monitoring of money coming in and money going out. Then continues into the Gross Domestic Product. The broad components of GDP are: consumption, investment, net exports, government purchases, and inventories. Consumption is by far the largest component, totaling roughly 2/3rds of GDP. The basic...