Question

a- What is a car, a final good or an intermediate good? Why?

    b- What is the difference between natural rate of unemployment and cyclical unemployment? Explain very briefly. (Please explain the difference only.)

    c- Company, which was once a state enterprise established in 1965, sold to foreigners in 2012. What was the effect of this transaction to Turkish GDP when it

was sold? (Increase?, decrease?, no change to GDP?) Explain the reason.

d- Bulgarian army bought an airplane from France in 2018. What is the effect of this transaction to Bulgarian GDP in 2018? (Increase?, decrease?, no change to GDP?)

Explain the reason.

Answer 1

a. Car can be classified as both final good as well as intermediate good. This is because if an individual purchases a car for his personal use, then it is classified as a final good. On the other hand, if the individual uses the car for taxi services, then the car becomes an intermediate good for his taxi business.

b. The natural rate of unemployment is the level of unemployment present at the full employment level in the economy. It consists of structural and frictional unemployment. Structurally unemployed are those people who are involuntarily unemployed because their skills are no longer in use in the market. For example, people who skilled in producing black and white tv might not be required in producing colored tv. Frictional unemployment is the voluntary unemployment where people are out of jobs for a short span of time for reasons such as searching for new job or better jobs, lack of mobility etc.

Cyclical form of unemployment occurs when people are out of jobs due to the business cycles of the economy. For example, during recession, people will be out of jobs due to lack of economic activity. And during boom more jobs will be created.

c. In this case, the GDP of the country is going to remain the same. This is because this transaction simply leads to transfer of assets and not results in actual increase in production.(This transaction will be included in balance of payments calculation because it involves change of ownership of assets which becomes a part of capital account. )

d. This transaction will lead to increase in GDP of Bulgaria. This is because purchase of an airplane is a part of government defense expenditure and this is included as part of government expenditure in the measurement of GDP through the expenditure method.