Question

1. In a given year, say the U.S. GDP is 18 trillion dollars and the Mexican GDP is 19 trillion pesos. What would you need to be able to compare the two GDP figures to know which economy is more productive? Why?  

2. Say Germany's GDP is $4,000 billion and its population is 79 billion. What is Germany's per capita GDP?

3. Which of the following are included in GDP. If they are not included, explain why not.

a. the cost of physical therapy service

b. the rise in life expectancy over time

c. a new television sale

d. a used television sale

e. an increase in the variety of plant-based milk options available at the grocery store

f. the sale of a gallon of plant-based milk

g. nitrogen that goes into agricultural fertilizer

h. environmental damage from illegal dumping into a river that goes unnoticed

4. Is double-counting a problem for calculating GDP? Would double counting tend to overstate or understate the size of the economy?

Answer 1

1. GDP is measured by the current price of goods and services produced in an economy in a given year.

Therefore, even if two countries produce the same level of output, the country with a higher price level would have a higher GDP. So, in order to compare the GDP of both the countries i.e. I need to have the price level of both the countries to measure the GDP of the countries according to purchasing power parity.

2. Germany's per capita GDP = GDP/Population =  $4,000 billion/79 billion = $50.63