Question

 3. Explain the four main components of GDP (i.e., C+I+G+(X-M)).

 4. What is the difference between nominal and real GDP?

 5. What is the consumer price index (CPI)?

Answer 1

Ans.3.

Four main Components of GDP are -

1. Consumption ( C ) - it is based on the use of goods and services which is being used by a household.
2. Investment ( I ) - are the goods purchased but not yet been used in the current year .
3. Government Spending (G) - IT is accumulation of all the expenditure , investment and consumption which is being done in the current year.
4. Net Exports (X - M ) it is calculated by substracting Exports with Imports , by which the total trade of a country is calculated.
5. GDP (Expenditure Approach ) = C + I + G + NX ( X - M )

Ans.4

Real GDP	Nominal GDP
Calculation is done using base year prices. Requires adjustment for inflation because of its calculation done with base year prices. Price change effect is not included. Real GDP is mostly lower than Nominal GDP.	Calculation is based upon current prices. Does not require adjustment for inflation Price change effect is included. Nominal GDP is higher because it takes inflation into consideration.

Ans.5.

Consumer Price Index(CPI)

CPI is how we measure the change in the average price of products and services that a individual who is a consumer normally purchases from the market ( basket of consumer goods ) such , food, shopping for clothes , medical etc.

It helps us measure the change in price level from the previous of base to current year. With an increase in price level , value of money will be lower and vice versa.

By the help of CPI we can measure the inflation level of the country , and also cost of living changes which happened due to price change can be determined.