Below is a list of 2 transactions in the economy. Is the item counted or not...

Below is a list of 2 transactions in the economy. Is the item counted or not counted in GDP calculation? Explain your answer.

i. CIC bought a new photocopy machine for its office use.

ii. Sam receives a monthly pension from the government.

(2.5 marks, approximately 50-80 words)

Part B

Quarterly Real GDP of Country X

Quarter	Real GDP (billions of dollars)
1	200
2	160
3	140
4	100
5	160
6	250

i. Referring to the table above, is Country X experiencing a Recessionary Phase or an Expansionary Phase between Quarter 1 and Quarter 4?

ii. Based on your answer in part (i), explain how the variables of unemployment, and business confidence change in this phase.

Expert Solution

1a - It will be included as investment in the GDP of country.

Since the machine as been bought newly , and is bought for the use in business , it will be called investment and will form part of GDP

b - No , the pension is not a part of GDP.

Pension earned , is given by the government and is called the transfer payment. It does not lead to production of any new good or service. Hence it is not a part of GDP

2 a - Between quater 1 and 4 , the real GDP has dropped from $ 200 billion to $ 100 billion. This means that the output of the economy is decreasing. Hence the economy will be called to operate in the recessionary phase

b - Since the demand is less in this phase , the supply also drops down leading to lesser demand for labor. Hence the unemployment rate rises. Due to lower consumption and investment , lower supply of funds , the interest rates rise. This leads to more expensive loans. The falling down economic performance leads to the fall of the confidence of businessmen and leads to lesser investment and production.

Rahul Sunny answered 2 years ago

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