Question

Gross Domestic Product (GDP) is one important indicator of economic well-being
of an economy. The following table shows expenditure components in the GDP of
a certain economy across three years (in billion dollars, 2018 chained values):

	2017	2018	2019
Private Consumptions	1000	1100	1200
Private Investments	500	520	540
Government Spending	100	150	180
Exports	8500	9000	8600
Imports	8300	8800	8500

a. Compute the annual economic growth rates over the period. Describe how the
economy changed over time.

b. Briefly explain the changing sources of growth during the period. Briefly
comment on such changes. Adopt relevant calculations as appropriate.

c. Briefly explain TWO limitations of relying on the above figures to indicate the
economic well-being of the households in the economy

.d. Refer to your answers in (c), suggest TWO additional macroeconomic indicators
to accompany with the given figures in representing the changing economic
well-being. Briefly explain your choices.

Answer 1

a.) Annual absolute GDP growth and GDP growth rate computed below using the expenditure approach alongwith the changes in given parameters.

There is an increasing trend over the years in all parameters except net exports:

(in billion $, 2018 chained values)
Indicator	Formula	2017	2018	2019
Private Consumptions	C	1000	1100	1200
Private Investments	Inv	500	520	540
Government Spending	G	100	150	180
Exports	E	8500	9000	8600
Imports	I	8300	8800	8500
Net Exports	NE = E - I	200	200	100
GDP	C + Inv + G + NE	1800	1970	2020
GDP Growth (Y-O-Y)	Current Year GDP - Previous Year GDP		170	50
Growth Rate (%)	100 X GDP Growth / Previous Year GDP		9.44	2.54

b) In 2018, there is a substantial growth in GDP of $ 170 Billion on the back of increased consumption, investments and government spending. However, the GDP growth rate in 2019 has fallen drastically due to fall in net exports vis-a -vis earlier years.

c) Below are the limitations of above analysis:

• Ignores population of the country
• Does not factor in disparities of income in the economy.

d) Below are the additional macroeconomic indicators to accompany with the given figures in representing the changing economic well-being:

• Per capita income to find out average GDP
• Gini co-efficent to measure disparities of income.