Question

1. Explain why we can measure the GDP or output of a country by adding up either the market value of production in that country or by adding up the income earned by people in that country. (Helpful hint: Remember when I used the example in class about two shoemakers, one who can produce 4 pairs of shoes per day and another who can produce 5 pairs per day. All the pairs of shoes are identical in quality.) 2. What are some ways in which GDP doesn't give us enough information to accurately measure the well-being or standard of living of a typical/average person in that country? 3. When we way an economy is at full employment, it doesn't mean that there is zero unemployment. Explain why this statement is true. 4. If a nation's economy is sliding into recession, and you are an economist, would you recommend that the government cut taxes and then make up for the drop in taxes collected by the government by cutting government spending? If not, what would you recommend? Explain your answer.

Answer 1

Answer 1. GDP is the market value of all goods and services produced in an economy during a particular period of time. If we want to measure GDP of an economy, it can be simply be measured by adding the market value of production in that county at particular time period. In other way, we can also add the income earned by people in the country during that time period. This is beacuse all the goods and servies produced in the economy are produced using factors of production, and these factors of production in retrun are paid factor payments, which becomes the income of people. So, the value of goods and servies produced in the economy are passed on to people in the form of income earned by them. Hence, market valuse of all goods and services prodcued is equal to the income earmed by people in the country during a particular period of time.

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