Nominal GDP represents economic output without inflation adjustment (Arnold, 2014). Therefore, GDP would be a poor measure of the increase in total production because it includes inflation that would give an inaccurate account of the economy. Besides, when nominal GDP increases, from one year to another, the increase is due to partly changes in prices and quantity.
Hint: GDP = C + I + G + Nx
The consumption expenditure will be affected. Purchasing a ticket involves spending on goods and services, and this will affect the economy. Besides, it represents the money that the household spends.
The investment will be affected. Purchasing a new jetliner from Boeing is an investment by the company because it spends money on productive equipment.
iii. FlyCheap Airlines purchases new seats to be installed on a jetliner it already owns.
This will affect the investment because it entails spending on good and services by the company.
Nothing will be affected because purchasing 200 million gallons of fuel is not included in GDP calculations. When the company purchases fuel, the transaction involves an operational expense.
This will affect the net export. The French citizen purchased the flying ticket from the French soil.
This will affect the government. This is because the government will pay for the construction of runways.
|Year||Real GDP (Billions of 2000 Dollars)|
For 1994: 7,101 -7,113/7,113 = -12/7,113 = -0.17%
1995: 7,337 – 7,101/7,101= 236/7,101 = 3.32%
1996: 7,533 – 7,337/7,337= 196/7,337 = 2.67%
1997: 7,836 – 7,533/7,533= 303/7,533 = 4.02%
Hint: Compute the average for the growth you calculated under (i) above.
(0.17) + 3.32 + 2.67 + 4.02 = 9.84/4 = 2.46%
iii. How does the average annual growth rate you calculated in (ii) above compare to the average GDP growth rate the U.S. normally expects?
According to forecasters, the U.S. normally expects a 4% GDP growth (Irwin, 2015). Therefore, the average annual growth rate calculated (2.46) is lower than what the country expects.
This will affect the consumption expenditure and net export.
The GDP will decrease because the consumer imports the product from China. Furniture purchase, which represents an import, decreases the GDP.
Yes, my answer will change if the company is U.S. owned. The monetary value involved in the transaction would be included in the GDP calculation because it would be measured as U.S. money.
Labor productivity is the real output per labor hour. Labor productivity growth depends on technology, investment and saving, and human capital (Mankiw, 2009). With positive changes, these factors will enable employees to produce more good and services for a given number of hours. In addition, advancement in technology will reduce production time, labor hours and improves standards and production capacity of the firm. This will increase labor productivity.
Arnold, R. A. (2014). Economics. Melbourne, Vic.: South-Western Cenage Learning.
Irwin, Neil. (July 18, 2015). Forecasters Expect a Strong Economy for the 2016 Presidential Election. Retrieved from http://www.nytimes.com/2015/07/19/upshot/the-economic-forecast-for-2016-and-what-it-means-for-the-election.html?_r=0
Mankiw, N. G. (2009). Principles of economics. Mason, OH: South-Western Cengage Learning.
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