Question

About Intermediate Macroeconomics:

a) Real GDP can be decomposed into a _______________ and a _________________.

b) Rises and falls in output cause output gap to rise and fall: a ____________ output gap means that the economy is under working its resources, and a negative output gap means that the economy is overworking its resources. In either case, it implies that the economy is not operating efficiently.

c) . Give the 2 different definitions of National Savings (formula ok): __________________ and ___________________.

Answer 1

a) Real GDP can be decomposed into an aggregate expenditure on Consumption (C), Investment (I), Government (G) and Net exports (NX). Where Y denotes the real GDP. Hence, Y= C+I+G+NX.

b)A positive output gap means that the economy is under working its resources, and a negative output gap means that the economy is overworking its resources. Generally, an output gap is the difference between the actual output and the potential output of an economy.

c) National Savings includes the sum of private and public savings. Public savings = Taxes (T) - Government spending (G). Private savings = National Income (Y) - Consumption (C) - Taxes (T). Therefore, National Savings (S) = (T-G) + ( Y-C-T).

National Savings consists of the amount which not spent. It includes the percentage of gross domestic product that households, government and businesses save rather than spending. National Savings (S) = National Income (Y) - Consumption (C) - Government purchases (G).