Question

In: Economics

1 - If you added together the value of all goods and services created or produced in one year in the economy, and included change in inventory and structures would you have an accurate measure of GDP?


 1 - If you added together the value of all goods and services created or produced in one year in the economy, and included change in inventory and structures would you have an accurate measure of GDP?

 2- What is the equation for demand side of GDP?

 3 - How does the figure arrived at in adding up the demand side components of GDP relate to the number arrived at by adding up all of the components of the supply side of GDP?

 4-What is the pattern of GDP in the long term for a developed country like the U.S.?

Solutions

Expert Solution

Answer 1:

Yes, by adding the value of all final goods and services produced in an economy and including change in the inventory and structures will given a accurate measure of the value of GDP in the economy. This method of calculating GDP is known as Value Added Method where we add the value added at each stage of production and also add change in inventory to it.

Answer 2:

The equation of demand side of GDP or aggregate demand in the economy = Consumption Expenditure + Investment Expenditure + Government Expenditure + Net Exports. Adding these value give us the demand side of the GDP calculations.

Answer 3:

At the equilibrium level, it has been observed that the figure obtained by adding demand side of the GDP level is equal to the figure obtained by adding supply side of the GDP level. and demand side shows a positiev relationship with price level and supply side shows a negative relationship with the price level in the economy.

Answer 4:

In the long term it has been observed, that the level of GDP in the economy is equal to the potential level of GDP in the economy and thus long run aggregate supply curve of the economy is fixed at the potential level of GDP in the economy.


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