AB204-02-Unit 4 Assignment
March 28, 2017
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.
- 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?
- Since the U.S. real GDP is substantially higher today than it was 60 years ago, it means that the U.S. is able to produce more goods and services today than it did 60 years ago. Some of the increase in real GDP is probably due to an increase in population, so one can say more if there was information on what happened to real GDP per person. For example, if there was an increase in real GDP per person, one could say there was a rise in standard of living. It also tells us that U.S. residents are very materialistic. According to the textbook, the limitations of the GDP in measuring total output and national welfare is it underestimates informal markets, overestimates negative externalities, and quality of life. (Mankiw, 2015) The biggest limitations of GDP is the quality of life, which includes wealth, employment, physical and mental health, education, etc. (Mankiw, 2015)The GDP is usually regarded as the best single measure of a society’s economic well-being because it “measures two things at once: the total income of everyone in the economy and the total expenditure on the economy’s output of good and services” (Mankiw, 2015).
According to Investopedia, “an intermediate good is a good or service that is used in the eventual production of a final good, or finishing product.”(Investopedia, 2012) Intermediate goods are sold by industries to one another for the purpose of resale or producing other goods. (For example, milk is used in the production of cheese counts as an intermediate good. An intermediate good differs from a final good, in that final goods are ultimately consumed rather than used in the production of another good. For example, a car is an example of a final good whereas, the tires or engine are examples an intermediate good or the parts that go into building the car. Intermediate goods produced and sold during the year are not included separately as a part of GDP because the value if these goods will be included in the value of the final goods produced from them. If the intermediate good is produced but not sold during the year its value is included as inventory investment for the year in which it was produced. If inventory investment was not included as part of GDP, true production would be underestimated for the year the intermediate good went into inventory, and overestimated for the year the intermediate good is used or sold.
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.
Some final goods and services are not included because it the products that were made in the past are just that in the past. Goods or services that replace other goods or services are also not included in the GDP. In the real GDP, only new goods or services are included, all because they were calculated when they were produced.
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|
|Purchases of new structures||$611|
|Salaries of government workers||$1422|
|Government expenditures on public works||$553|
|Foreign purchases of domestically produced goods||$88|
|Domestic purchases of foreign goods||$120|
Refer to the Table above to answer the following questions.
In Q4a, according to the expenditure approach, Country A’s GDP in 2010 = C (consumption) + I (Investment) + G (Government Spending) + NX (Net Exports = Exports – Imports) = $7,253 country A’s GDP in 2010
- What was country A’s GDP in 2010?
Household purchases of durable goods ($1293) + Household purchases of nondurable goods ($1717) + Household purchases of services ($301)= $3,311 country A’s consumption in 2010.
- What was country A’s consumption in 2010?
In Q4c, Country A’s investment in 2010 = Household purchases of new housing (704) + Purchases of capital equipment (310) + Inventory changes (374) + Purchases of new structures (611) = $1,999. Depreciation is NOT included in Country A’s investment (although it is included in GDP, according to the income approach)..
- What was country A’s investment in 2010?
e.What were country A’s exports and imports in 2010? What was the net export in 2010?
- What were country A’s government purchases in 2010?
- In Q4d, Country A’s government purchases in 2010 = Salaries of government workers (1422) + Government expenditures on public works (553) = $1,975. Transfer payments are NOT included in Country A’s government expenditures.
In Q4e, Country A’s exports and imports in 2010 are $88and $120, respectively. Country A’s net exports in 2010 are NX = X – M = 88 – 120 = -$32
Intermediate Goods Definition | Investopedia. (2012, October 15). Retrieved September 22, 2015, from http://www.investopedia.com/terms/i/intermediate-good.asp
Mankiw, N. (2015). Principle of Macroeconomics, 7e, 7th Edition. [VitalSource Bookshelf Online]. Retrieved from http://kaplan.vitalsource.com/#/books/9781305156067/http://kaplan.vitalsource.com/#/books/9781305156067/
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