The GDP Case Study

1) U.S. real GDP is substantially higher today than it was 60 years ago. What does this tell us, and what does it not tell us, about the well-being of U.S. residents? What are the limitations of the GDP as a measure of economic well-being? Given the limitations, why is GDP usually regarded as the best single measure of a society’s economic well-being?

The GDP is defined as the market value of all final goods and services provided within a country in a given period of time. The U.S. GDP being higher than it was 60 years ago shows that the U.S. if producing more goods and services and that the economy is improving. It does not however tell which goods and services are being produced or reflect the unemployment rate. Some limitations of the GDP include people what their output is as well as their down town, the products themselves whether it is the environmental effects or the quality of the products. The GDP is still a important tool because it measures the total output of the particular country. The GDP can be compared to itself from a different period to demonstrate how the economy has improved or worsened. 2) What is an intermediate good? How does an intermediate good differ from a final good?

Explain why it is the case that the value of intermediate goods produced and sold during the year is not included directly as part of GDP, but the value of intermediate goods produced and not sold is included directly as part of GDP. Intermediate goods are the products or services that will eventually become the final product or the final goods. These items are the preliminary goods so these are still in process and net yet ready to be sold where as a final good is ready to go on the market and be sold to consumers. If the value of the intermediate good is factored in the GDP then it would be factored twice because this value is already a part of the GDP once the finalized product goes on the market. However say that an intermediate good is not processed or resold as the final product its value must be factored in the GDP. This is only the case if the intermediate goods were not resold within that year. These intermediate goods become part of the company’s inventories.

3) GDP is defined as the market value of all final goods and services produced within a country in a given period of time. In spite of this definition, some production is left out of GDP. Explain why some final goods and services are not included.

There are some final goods that are not counted in the GDP due to the inability to measure these products. These products may not be measured because they are illegal products considered to be bad products. They may also be products that are kept within the home or through family. The GDP is unable to measure services that family members provide for each other.

4) The table below contains data for country A for the year 2010. Household purchases of durable goods
$1293
Household purchases of nondurable goods
$1717
Household purchases of services
$301
Household purchases of new housing
$704
Purchases of capital equipment
$310
Inventory changes
$374
Purchases of new structures
$611
Depreciation
$117
Salaries of government workers
$1422
Government expenditures on public works
$553
Transfer payments
$777
Foreign purchases of domestically produced goods
$88
Domestic purchases of foreign goods
$120

Refer to the Table above to answer the following questions. a. What was country A’s GDP in 2010?
The GDP is $4,111.
b. What was country A’s consumption in 2010?
Country A’s consumption for 2010 was $3,311.
c. What was country A’s investment in 2010?
The Investment for 2010 was $1,999.
d. What were country A’s government purchases in 2010?
Government purchases in 2010 were $$1,975.
e. What were country A’s exports and imports in 2010? What was the net export in 2010? In 2010 the exports and imports were $208. The net export which is determined by subtracting the amount of imports from the amount of exports was -$32.

References:

Mankiw, N. Principles of Macroeconomics. 7th Edition. Cengage Learning, 2015.