Question

Question 4 Assume that the government of a hypothetic country, Newsland, publishes the data of the country's Gross Domestic Product (GDP) in 2019. The data are shown in the following table. Amount GDP Components (measured at current market price) $ (in million) 9,400 1,350 309 87,230 7,219 34,254 Imports of goods Rental income Depreciation Corporate net profits Imports of services Wages Decrease in stock Indirect business tax Government expenditure Net interest Exports of goods Subsidies 651 13,085 90,368 1,826 10,552 834 a) (5 marks) Use the most appropriate approach to calculate the GDP (at market price) for Newsland. b) Determine whether the following underlined items are final goods (or services) or intermediate goods (or services). (i) A pack of flour bought by a baker for producing bread. ) A yoga training package bought by an office lady. (1 mark) (1 mark) Briefly explain whether the following activities are included in the GDP of Newsland or not. (iii) The services of shares transaction/brokerage provided by a stockbroker. (iv) Government expenditure on providing assistance to people facing financial difficulties. (1.5 marks) (1.5 marks)

Answer 1

A) income approach is most appropriate in this case.

NDP at factor price=wages or compensation + rental income +net interest+ profit

NDP at factor price=34,254+1350+1826+87230=124,660

Net taxes=indirect taxes - subsidy=13,085 -834=12251

NDP at market price=NDP at factor price + net taxes=124,660+12,251=136,911

GDP at market price =NDP at market price + depreciation=136,911+309=137,220

B)i)the final good can't be used for further production of any other good on other hand intermediate goods are used for production of other product.final good bought and consume by final consumers . intermediate good bought and used for production by producer.A good can be both intermediate and final good , depends how the good is used.for example milk,as drinking the milk it is final good but using it to produce sweets ,it is intermediate good

As pack of flour would be used for producing bread ,so it is intermediate good.

ii)the yoga training pack is consuming by final CONSUMER and not using for any other good production ,so it is final good.

iii)GDP include all factor income or payment that turned into some one factor income.

Income of services of brokerage is factor income to it is include in GDP

iV)this is transfer payment ,there is no good and services is being produced.so this wouldn't include in GDP.

C)to calculate GDP through value added,we need to find Value addition by each producer at each stage and by adding those values addition we can get GDP.

Cotton firms cost is zero so it added 23 million and sold to manufacturer.

Manufacturer added 47 million (70-23=47) and sold retailer at 70 million.

Retailer added 14 million(84-70=14) and sold to final consumers at 84 million

GDP=23+47+14=84 million

ii) to get at gdp market price we need to add net taxes .

Net taxes it difference of aggregate indirect taxes and subsidy(indirect taxes - subsidy)

D)i)marginal propensity to consumer =change in consumption/ change in disposable income

MPC=450/500=0.9

ii)exports is the foreign demand of domestic good .as foreign economy faces slowdown and their GDP decreases , foreign demand for domestic good decreases. As demand for domestic goods decrease , exports and GDP decreases

As expected household income Increase ,people know that they will have more income in next period .so they consume more in current period.import is part of consumption,as consumption Increase ,imports also increases.but imports is not part of GDP ,so its Increase doesn't affect GDP but Increase in consumption of domestic goods will increase GDP.{ Import include through consumption and deducted through net exports}