Gm545 Project 2

Assignment Week 5: Project paper 2

GM 545 Business Economics

Professor William Sasser

April 2, 2011

1. Chapter 15.11: the table below lists Gross Domestic Product (GDP)

Year | GDP | C | I | G | X-M | C% | I% | G% | X-M% |

1965 | 719.1 | 443.8 | 118.2 | 1515 | 5.6 | 61.72 | 16.44 | 21.07 | 0.8 |

1975 | 1638.3 | 1034.4 | 230.2 | 357.7 | 16 | 63.14 | 14.05 | 21.83 | 1 |

1985 | 4220.3 | 2720.3 | 736.2 | 879 | -115.2 | 64.46 | 17.44 | 20.83 | -2.7 |

1995 | 7397.7 | 4975.8 | 1144 | 1369.2 | -91.4 | 67.26 | 15.46 | 18.51 | -1.2 |

2005 | 12455.8 | 8742.4 | 2057.4 | 2372.8 | -716.7 | 70.19 | 16.52 | 19.05 | -5.7 |

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a. Which component is the most stable?

The government spending (G) seems to be the more stable component with an average of 20.25% of GDP for the forty years in review. The government spending G includes the salaries and wages of government employees (federal, state and local) and the purchase of goods and services, the purchase of new structures, equipment and software. G has increased over the period, representing almost 1/5 of the GDP; it means that the government has played a stable and active role in the U.S. economy.

b. Which component is the most volatile?

The most volatile component has been the Net Export. Representing 0.8% of GDP in 1965, it was -2.7% of GDP in 1985, -1.2% in 1995 and -5.7% of GDP IN 2005. It also shows that the U.S. economy has been more dependent on imports.

c. Ignoring the net export, which has grown the fastest as percentage of the GDP?

The personal consumption expenditure C has increased from 61.72% of GDP to 70.19% in 2005. This indicates that the internal consumption has been the major drive of the growth of the economy for the period under review.

2. What are some limitations of the national income accounts as a standard of living?

The standard of living is a measure of the welfare of inhabitants of a country. One indicator...