Calculate missing data from the table IncomeExpenditure Flow

Calculate missing data from the table.

Income/Expenditure Flows

Amount (in billions)

Consumption expenditure

$7

Government expenditure

$5

Depreciation

$3

Net taxes

$2

Investment

$4

Net exports

$1

Expenditures

Income

GDP =

Calculate an economy\'s nominal GDP and real GDP.

In 2000:

Item

Quantity (millions)

Price ($/unit)

Expenditure

(millions of $)

Socks

15

5

75

SIM cards

20

2

40

Defense Budget

9

5

45

Real/Nominal GDP = 160

In 2003:

Item

Quantity (millions)

Price ($/unit)

Expenditure

(millions of $)

Socks

15

5

75

SIM cards

20

5

100

Defense Budget

20

10

200

Nominal GDP =

2003 Quantities valued at 2000 prices:

Item

Quantity (millions)

Price ($/unit)

Expenditure

(millions of $)

Socks

SIM cards

Defense Budget

Real GDP =

Answer the following questions.

How do you measure GDP?

How do you measure real and nominal GDP?

How do you determine Consumer Price Index and what are its limitations?

Which of the following expenditures will be included in GDP which will be excluded from the calculation? Explain your answers.

Spare tires bought by Across America, a car rental company

Textbooks bought by college students

Cabinets purchased by a furniture store

A new car purchased by an NFL player

A cruise ship bought by Carnival

Income/Expenditure Flows	Amount (in billions)
Consumption expenditure	$7
Government expenditure	$5
Depreciation	$3
Net taxes	$2
Investment	$4
Net exports	$1
Expenditures
Income
GDP =

Solution

How do you measure GDP?

GDP means the final value of the all goods and services in country during period of time generally we consider financial year.

There are some important things are

GDP equation: Y = C + I + G + NX    or

                          Y = C + I + G + (X M)

Expenditure = 7+5= 2

GDP : consumption expenditure= 7

           Covernment expenditure= 5

          Investment= 4

           Net exports= 1

              

                                        GDP=7+4+5+1= 17

Nominal GDP and real GDP

Nominal GDP : nominal GDP is calculate with current price levels. Since the nominal GDP isn\'t adjusted for inflation, it doesn\'t necessarily accurately reflect the economic strength of an economy over time because the increase may be due to inflated prices rather than increased output.

Real GDP: real GDP calculate with base year prices. It is a macroeconomic measure, it may inflation or deflation. This adjustment transforms the money-value measure, nominal GDP, into an index for quantity of total output.

Nominal GDP = 375

2003 Quantities valued at 2000 prices:

Item

Quantity

Price

Expenditure

Socks

15

5

75

SIM cards

20

2

40

Defence budget

20

5

100

Q×P=E

Where Q is the quantity, P is price and E is the expenditure

Real GDP = 100+40+75= 215

How do you determine Consumer Price Index and what are its limitations?

Consumer Price Index (CPI): average price changes in prices paid by urban consumers for basket of goods in market over a period of time. It is the index of real value of wages, salaries, pensions, price regulation.

Limitations:

Which of the following expenditures will be included in GDP which will be excluded from the calculation? Explain your answers.

Not Included items:

Spare tires bought by across America, a car rental company.

Included items:

1.Textbooks bought by college students.

2.Cabinets purchased by a furniture store.

3.A new car purchased by an NFL player.

4.A cruise ship bought by Carnival

Item	Quantity	Price	Expenditure
Socks	15	5	75
SIM cards	20	2	40
Defence budget	20	5	100