Deck 8: The Keynesian Short-Run Policy Model: Demand-Side Policies

Question 1

Find consumption expenditures (as a percent of GDP) for the following countries. (Requires research.)
a. Mexico
b. Thailand
c. Poland
d. Nigeria
e. Kuwait

Answer 1

a. According to World Bank report 2012, the consumption expenditure of Mexico as percentage of GDP is 76percent.
b. According to World Bank report 2012, the consumption expenditure of Thailand as percentage of GDP is 66.93 percent.
c. According to World Bank report 2012, the consumption expenditure of Poland as percentage of GDP is 80.27 perecent.
d. The Private consumption expenditure of Nigeria is 52.26 percent of GDP according to (NBS, 2007).
e. According to World Bank report 2012, the consumption expenditure of Kuwait as percentage of GDP is 37.38 percent.

Question 2

Your textbook points out that GDP fails to recognize much of the work done in the home, largely by women. Most estimates assign that work great economic value. For instance, one measure, developed by the UN's International Training and Research Institute, calculates that counting unpaid household production would add 30-60 percent to the GDP of industrialized countries and far more for developing countries.
a. Why do you think that work done at home is left out, but housing services are not?
b. Does it make any difference to how women are treated and thought about that work done at home is not counted in GDP?
c. If you were valuing the services of a housespouse, how would you go about measuring the value of those services? (Feminist)

Answer 2

GDP i.e. gross domestic product is the total sum of goods and services produced within the country in a year. GNP i.e. gross national product is total sum of goods and services produced by the citizens of the country irrespective of the borders of the country.
a.There can be two different school of thoughts that can answer this question. An economist would believe that the reason for not counting the household work in GDP is that it is not possible to calculate the value of the work done at home because everybody has different potential and productivity. While some would believe that the reason behind this is the undervaluation of work done by females as they are consideredb.This approach makes ac.If one has to calculate the value of the job done at home, then one has to hire somebody to do the same work, and the price charged by the person would be the value of a job that females do at home.

Question 3

What expenditure category of production is largest for most countries?

Answer 3

Consumption expenditure category of production is largest for most countries. Consumption refers to the spending by households on goods and services. The expenditure by consumers on shampoo, food, television, refrigerator, doctors and lawyers etc. represent the consumption expenditure. Whatever production takes place in economy, part of it is purchased by consumers.
According to the World Development Report, 2009 the United States has maximum consumption expenditure of $10,057 billion. The consumption expenditure contributes to 71 percent of the GDP in United States. The Belgium's consumption expenditure is 51 percent of the GDP, investment expenditure is 23 percent of the GDP and government expenditure is also 23 percent of the GDP. In other countries too major category is consumption. Thus, consumption expenditure category is largest for most countries.

Question 4

If the United States introduces universal child care, what will likely happen to GDP? What are the welfare implications?

Question 5

In "Christianity and Economics: A Review of the Recent Literature," economist John Tiemstra states, "taking good to mean self-perceived happiness derived from economic consumption adopts an ethic that is foreign to biblical Christianity." Your textbook cautions that GDP is not the same as welfare.
a. What would you include in an index to measure the welfare of a society that takes into account Christian ethics?
b. What would you purposefully not include in that index? (Religious)

Question 6

What's the relationship between a stock concept and a flow concept? Give an example that hasn't already been given in this chapter.

Question 7

If society's goal is to make people happier, and higher GDP isn't closely associated with being happier, why do economists even talk about GDP?

Question 8

Explain the sense in which GDP accounting is an institution (see the Oxford Dictionary of the English Language for a precise definition of an institution).
a. How does GDP as an institution shape our understanding of the economic system?
b. Who benefits from using GDP accounting as a measure of welfare? (Institutionalist)

Question 9

State whether the following actions will increase or decrease GDP:
a. The United States legalizes gay marriages.
b. An individual sells her house on her own.
c. An individual sells his house through a broker.
d. Government increases Social Security payments.
e. Stock prices rise by 20 percent.
f. An unemployed worker gets a job.

Question 10

In the expenditure approach of GDP, should G (government purchases) be taken into account within the calculation the same way C (consumption) and I (investment) are measured? If not, is there something inherently different about the nature of private and public expenditures? (Austrian)

Question 11

If you add up all the transactions in an economy, do you arrive at GDP, GNP, or something else?

Question 12

The government spends far too much money collecting and organizing statistics. If those statistics were necessary, the private market would collect them.
a. Explain the sense in which the above statement is true.
b. Who do you think is the major supporter of government collection of data? (Austrian)

Question 13

The United States is considering introducing a value- added tax. What tax rate on value added is needed to get the same revenue as is gotten from an income tax rate of 15 percent?

Question 14

Unlike GDP, the "Genuine Progress Indicator" measures the costs as well as the benefits of economic growth by accounting for how production and consumption create social ills such as inequality and create environmental problems that threaten future generations, such as global warming and the depletion of natural resourses. GPI adjusts GDP downward to account for these costs, along with underemployment and thea. In your opinion, does gross national product per capita or the Genuine Progress Indicator provide a better measure of economic progress?
b. Why? (Radical)

Question 15

There are three firms in an economy: A, B, and C. Firm A buys $250 worth of goods from firm B and $200 worth of goods from firm C, and produces 200 units of output, which it sells at $5 per unit. Firm B buys $100 worth of goods from firm A and $150 worth of goods from firm C, and produces 300 units of output, which it sells at $7 per unit. Firm C buys $50 worth of goods from firm A and nothing from firm B. It produces output worth $1,000. All other products are sold to consumers.
a. Calculate GDP.
b. If a value-added tax (a tax on the total value added of each firm) of 10 percent is introduced, how much revenue will the government get?
c. How much would government get if it introduced a 10 percent income tax?
d. How much would government get if it introduced a 10 percent sales tax on final output?

Question 16

If the government increases transfer payments, what happens to aggregate output?

Question 17

Economists normally talk about GDP even though they know NDP is a better measure of economic activity. Why?

Question 18

Which will be larger, gross domestic product or gross national product?

Question 19

You've been given the following data:
From these data, calculate GDP, GNP and NDP.

Question 20

What is the largest component of aggregate income for most countries?

Question 21

Given the following data about the economy:
a. Calculate aggregate output (GDP) and aggregate income.
b. Compare the two calculations in a. Why are they not precisely equal?
c. Calculate GNP.
d. Calculate NDP.

Question 22

You have been hired as a research assistant and are given the following data.
a. Calculate GNP, GDP, and aggregate income.
b. What is depreciation in this year?
c. What is NDP?

Question 23

What income category keeps aggregate output and aggregate income equal?

Question 24

What makes it difficult to compare GDP over time? How is the problem addressed?

Question 25

Below are nominal GDP and GDP deflators for four years.
a. Calculate real GDP in each year.
b. Did the percentage change in nominal GDP exceed the percentage change in real GDP in any of the last three years listed?
c. In which year did society's welfare increase the most?