Problemas
3. State the formula for the Expenditure Approach.Define each component give an example and state the percentage of each component in overall GDP. 4. What are some ways GDP is understated? 5. What are some ways GDP is overstated? Nhy is GDP not a good measure of quality of life?
Roztwór
Adrián
professionell · Tutor durante 6 años
4.2
(163 Votos)
Respuesta
3. The formula for the Expenditure Approach is:GDP = C + I + G + (X - M)Where:- C = Consumption: This represents the total amount of goods and services consumed by households. For example, when a family buys groceries or pays for a utility bill, it is considered consumption. Consumption is typically the largest component of GDP, accounting for around 70% of the total GDP in most economies.- I = Investment: This represents the total amount of goods and services purchased for the purpose of future production. For example, when a company buys new machinery or a family buys a new house, it is considered investment. Investment is typically around 15-20% of GDP.- G = Government Spending: This represents the total amount of goods and services purchased by the government. For example, when the government pays for a military or builds a new highway, it is considered government spending. Government spending is typically around 20-25% of GDP.- X = Exports: This represents the total amount of goods and services sold to other countries. For example, when a company sells cars to a foreign country, it is considered an export. Exports typically account for around 10-20% of GDP.- M the total amount of goods and services purchased from other countries. For example, when a family buys a car made in another country, it is considered an import. Imports are subtracted from GDP because they represent spending on foreign goods and services.4. GDP can be understated in the following ways:- Underground economy: GDP does not account for economic activities that are not reported to the government, such as illegal activities or unreported income.- Non-market transactions: GDP does not account for the value of goods and services that are produced and consumed within households, such as household labor or barter transactions.- Discouraged workers: GDP does not account for the potential output that is lost when people are unable or unwilling to find work.5. GDP can be overstated in:- Inflation: GDP can be overstated if it does not account for changes in the price level over time, leading to an overestimation of the true growth in output.- Depreciation: GDP can be overstated if it does not account for the depreciation of capital goods, such as machinery and equipment, which can lead to an overestimation of the true growth in output.- Quality improvements: GDP can be overstated if it does not account for improvements in the quality of goods and services, which can lead to an overestimation of the true growth in output.6. GDP is not a good measure of quality of life because it only measures the total value of goods and services produced within a country, without taking into account other important factors that contribute to the well-being of individuals, such as income inequality, environmental quality, and access to education and healthcare. GDP also does not account for non-market transactions, such as household labor or volunteer work, which can contribute to the overall well-being of individuals.