Question

a) distinguish between norminal versus real GDP

b) discuss some of the criticisms of GDP

briefly describe the four stages of the business cycle and discuss the economic activity within each of those stages in terms if GDP, inflation and unemployment

Answer 1

QUESTION-A-

1.NOMINAL GDP-nominal GDP is a concept where the product's value is determined for a particular year's price and quantity.this means each and every year has its own significance.

example-

YEAR	PRICE	QUANTITY	VALUE=PRICE X QUANTITY
2010	10	15	10x15=150
2020	22	27	22x27=594

as we can observe that the value has been find by the product of respective year's price and quantity.

2.REAL GDP-

in the real GDP the base year is assumed and treated as the price for all year and then the calculation is executed we can understand the concept with the previous example assuming that the base year is 2010.therefore the price of 2010 would be taken even for the calculation of value of 2020.

example-

YEAR	PRICE	QUANTITY	VALUE=PRICE X QUANTITY
2010	10	15	10x15=150
2020	22	27	10x27=270

QUESTION-B

• the GDP fails to represents the true picture of the national status it means it is not necessary that a country with higher GDP is always prosperous and a country with lower level of GDP is always weaker.
• it fails to represent the standard of living of people.
• the calculation is very complicated and the accuracy concerned with the base year and price level is always dubious.

QUESTION-C

1. BOOM PERIOD-in this period the inflation is at its peak and there is over full employment,the GDP is higher compare to all the remaining level.
2. RECESSION-in this period the growth rate declines and the GDP also declines the prices decreases and people start losing their jobs.this may happen due to government decision and controlling with fiscal policy or central bank's monetary policy or natural causes.
3. DEPRESSION-this situation is very critical and unemployment is at its peak and various steps are taken for the revival of economy.the price would fall but there would be lack of demand due to high level of unemployment in the economy.GDP would be lower to zero and even negative.BOP would be negative.
4. STABILITY-when government and central banks would take various actions to combat the depression then the economy would restore to equilibrium level.there would be generally full employment level and GDP would be nominal.