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Gdp Estimation Usa

Essay by   •  March 20, 2011  •  Essay  •  540 Words (3 Pages)  •  2,406 Views

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To estimate GDP you add the value of all the goods and services produced, both final and intermediate goods. Is this procedure correct? Why? Adding all the goods and services produced is incorrect because it will lead to significant double counting. Intermediate goods and services will be double counted. For instance, if a CPU produced by Intel and then used in a Dell computer is counted both as a CPU from Intel and as part of the computer from Dell, the CPU has been double counted.

12. What is the relationship between aggregate income and aggregate production? Why does this relationship exist? Aggregate income equals aggregate production. The circular flow shows this result: The flow of production out of business firms equals the flow of expenditure into business firms. The flow of expenditure into business firms equals the flow of costs out of business firms. And the flow of costs out of business firms is the same as the flow of aggregate income to households.

13. Does my purchase of a domestically produced Ford automobile that was manufactured in 2000 add to the current U.S. GDP? Why? How about my purchase of a domestically produced, newly produced Ford? Why? The purchase of the used Ford does not add to the current U.S. GDP though it did add to U.S. GDP in 2000 when the car was newly produced. GDP measures production within a given time period and the used Ford was not produced within the current year. A new Ford automobile, however, is counted in current U.S. GDP because it was produced in the current year.

14. Does my purchase of 100 shares of stock in Google add to the nation's GDP? Why? Purchasing shares of stock does not add to the nation's GDP. GDP measures production. Shares of stock are not the production of a good or service and therefore are not included in GDP.

15. If a homeowner cuts his or her lawn, is the value of this work included in real GDP? Suppose that the homeowner hires a neighborhood kid to cut the lawn. Is this activity included in real GDP? Comment on your answers. The homeowner's work around his or her home is not included in GDP because home production is excluded. Hiring a neighborhood kid to cut the lawn is, in theory, included in GDP because it is a service that has been sold in a market. This difference in the treatment of these two activities shows a flaw in how GDP is computed. In both cases the precise same lawn is mowed. But in one case GDP is unaffected and in the other GDP increases. It is paradoxical that the effect on GDP of producing the same service depends on who produces the service.

16. In 1900, the average work week was 65 hours; today it is approximately 35 hours. How did this change affect real GDP within the United States? How did it affect the standard of living within the United States? Comment on your answers. The decrease in the average work week decreases real GDP from what it would have been if the work week had remained at 65 hours

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