Macroeconomics Part I

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MACROECONOMICS 1

Macroeconomics

PartI

1.What is Country A’s GDP?

TheGross Domestic Product is the measure of a country economic activity.It is the sum of market values of final products produced within agiven period.

GDP= C + I + G + (X-M)

Inthe above equation C is the consumer spending G is the governmentexpenditure I is investment M are the imports and X are exportsthe net exports is (X-M) C =90,000

G=25,000

I=10,000

X=65,000

M=50,000

Therefore,GDP is 90,000 + 10,000 + 25,000 + (65,000 – 50,000) = 140,000 cars

2.What is the composition of GDP by percentage?

Consumerspending =90,000/140,000 *100 = 64.29%

Investments= 10,000/140,000 * 100 = 7.14%

Governmentspending = 25,000/140,000 * 100 = 17.86%

Netexports = 15,000/140,000 * 100 = 10.71%

3.What is the GDP per capita?

GDPis 140,000

Totalpopulation is 500,000

Therefore,GDP per capita is 140,000/500,000 = 0.28 cars

4.How does this relate to Keynesian economics?

JohnMaynard Keynes developed Keynesian economics. In his arguments,Keynes stated that investment is not equal to savings. Keynes was ofthe opinion that government spending encourages private investment.Keynes also believed that spending does not have any effect on theGDP. According to Keynesian economics, an increase in investment hasan effect on income. As such, the increase in income leads to anincrease in consumption. Keynes also believed that an increase ingovernment spending is beneficial for the economy. If GDP increases,then there will be a rise in investment. It shows that Keynesianeconomics is relates to the GDP.

PartII

1.Where is the United States in the business cycle?

Inthe business cycle, the United States is on the upward cycle. Theeconomy has had improvements in several sectors. According to theBureau of economic analysis, in the second quarter of 2016, the realgross domestic product (GDP) increased by 1.1 percent (BLS.gov,2016).

2.What is the real GDP today?

Basedon the data from Bureau of Economic analysis, the real GDP today is$16.575 trillion. This figure was for quarter two of 2016 (BLS.gov,2016).

3.What is the largest component of GDP?

Thelargest component of GDP in the U.S economy is personal consumption.It is because the economy produces goods mainly for personalconsumption. Therefore, personal consumption contributes about 68% ofthe Gross Domestic Product. Besides, the United States has a largedomestic population whose geographical location is easily accessible.As such, businesses know what customers want (BLS.gov, 2016).

4.What is the smallest component of GDP?

Theexport sector contribute a very small percentage to the GDP, thus, itis the smallest component.

5.What is the fastest growing component of GDP, and why?

Inthe US, the component that experiences the fastest growth is imports.It is because of currency depreciation experienced by the tradepartners.

6.What components of GDP were involved in the change from last month tothis month?

Thereare different components which resulted to an increase in the GDPover the last two months. These components include privateinventories, domestic purchases, goods, and services,

7.What is the price index today?

Theprice index for gross domestic purchases had an increase of 2.1percent in the second quarter of 2016. This is higher compared to thefirst quarter that only had a 0.2 percent increase. (BLS.gov, 2016)

8.What caused the change?

Thechanges to the gross domestic product were because of an increase inthe domestic investment, government expenditure, net exports, andinvestment.

References

Bureauof Economic Analysis. (2016). News Release: Gross Domestic Product.Retrieved August 26, 2016, fromhttp://bea.gov/newsrelease/national/gdp/gdpnewsrelease.htm

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