Question

 

Question 1 (Word limit 200 words)

“If country A and country B have the same level of real GDP per person, then people in both countries must enjoy the same standard of economic welfare.” Is this statement true or false? If true, please explain your answer. If your answer is false, please list and explain two things that lead you to this conclusion.

Question 2 (Word limit 150 words)

Identify and explain the immediate effect of each of the following events on domestic GDP and its components.

Kylie receives an unemployment insurance cheque.
Bob buys an imported sports car.

Question 3 (Word limit 200 words)

Suppose the required reserve ratio is 10% and Jane deposits $50000 of her cash into a bank. By how much will total money supply rise or fall? Show your working and explanation.

Answer 1

a)If two country has same GDP per capita that does not mean both of the countries enjoy same standard of economic welfare. Typically economists use GDP per capita as a measure of standard of well being but it is not always true that high GDP per capita means there is improved child healthcare available in the country or modernized education in available to all in that country. the reasons behind the statement are

• GDP cannot evaluate polluted good if two country have same per capita GDP but one has fresh air and water but other has polluted air and water thus well being will be different but GDP cannot calculate it
• Distribution of goods and income can not be determined by GDP though two economy can have equal GDP per capita that does not mean they will have equal income distribution
• GDP does not consider leisure time , two economy having same GDP per capita but one country has 8 hours working time another has 12 hours thus there well being will be different

b) Unemployment insurance cheque goes under social security payments mainly known as transfer payment which is not included in GDP calculation. as these transfer payment are not for any produced good and services thus there will be no change in GDP

Buying an imported car will increase the amount of import thus net export will fall GDP will fall in this case

c) Required reserve ratio is 10% thus money multiplier will be 1/ reserve ratio = 1/10%= 10

thus change in money supply = change in reserve * money multiplier = $50000*10= $500000 thus money supply will increase by this amount.