Question

1) Business Cycle:  

Analyze the graphic below. What conclusions can you make regarding the business cycle? Which cycle is the United States currently experiencing and what evidence can you give to support your answer?

2) GDP and Circular Flow

What are the four components of GDP?  How is GDP used as a measurement of the economic performance?

Answer 1

Answer 2:

Four major components of GDP are 1. Private Consumption Expenditure (C) 2. Investment Expenditure (I) 3. Government Purchases of Goods and Services (G) 4. Net Exports (X – M)!

C: This component measures the monetary value of consumer goods and services which are purchased by households and non-profit institutions for current use during a period of account.

I: Investment means additions to the physical stock of capital during a period of time: Gross Private Domestic Investment shows the aggregate value in this regard. Investment Includes building of machinery housing construction, construction of factories and offices, and additions to a firm’s inventories of goods.

G: This component summarises government spending on goods and services. It includes (i) purchase of intermediate goods and (ii) wages and salaries paid by the government. All government purchases are a proxy measure for government output.

X-M: It shows the difference between domestic spending on foreign goods (i.e., imports) and foreign spending on domestic goods (i.e., exports). Thus, the difference between Exports (X) and Imports (M) of a country is called Net Exports (X- M)

Gross Domestic Product (GDP) is one of the most widely used measures of an economy’s output or production. It is defined as the total value of goods and services produced within a country’s borders in a specific time period: monthly, quarterly, or annually. GDP is an accurate indicator of the size of an economy and the GDP growth rate is probably the single best indicator of economic growth while GDP per capita has a close correlation with the trend in living standards over time.