Question

Please answer and discuss the following questions.  What is GDP and how is it calculated?  Discuss what would happen to an economy’s GDP if that economy suddenly made the production of a good/service which was previously legal, now illegal.  Next, based on your analysis of what would happen to GDP, what are the advantages and/or the disadvantages this economy may experience (use economic theory to support your answer)?  

Answer 1

Answer:

GDP:-(GROSS DOMESTIC PRODUCT ):-

This is the total value of goods and services produced in a country in a specific time say , a year . GDP as an economic indicator is used worldwide to show the economic health of a country .

Three types :-

1. Real Gross Domestic Product. which is after inflation has been taken into account.

2.Nominal Gross Domestic Product. This is at current prices (i.e. with inflation).

3.Gross National Product (GNP) ...

4.Net Gross Domestic Product.

Calculation :-

In simple GDP is measured by taking the quantities of all goods and services produced, multiplying them by their prices, and summing the total.

It has Three methods universal to calculation:-

(i) The Expenditure Method

GDP = C + I + G + (X-M) where

• C: Household spending on goods and services
• I: Capital Investment spending
• G: Government spending
• X: Exports of Goods and Services
• M: Imports of Goods and Services

The Income Method – adding together factor incomes

GDP is the sum of the incomes earned through the production of goods and services. This is:

• Income from people in jobs and in self-employment (e.g. wages and salaries)
• +
• Profits of private sector businesses
• +
• Rent income from the ownership of land
• =
• Gross Domestic product (by sum of factor incomes)

Value Added Method =

Value of output - Intermediate consumption

If The country suddenly produces the goods which previous were legal but now illegal:-

then the economy will get effected by the sum total of produce of illegal products decreasing from the GDP .As illegal goods production in the country economy is never counted in the Sum Total of GDP .So GDP of economy will not count the production worth of those illegal goods worth.

Advantage Economy Experience:-

1.It ascertain its national worth excluding illegal production

Advantage Economy Experience:-

1.Its GDP Excludes illegal production hence GDP Decrease by that amount

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