Question

Consider an economy in which the government employs teachers to provide education services to the public which are funded entirely by taxes. These government employees (i.e. doctors) earn salaries for this work. Assume that a pandemic starts which causes many parents not to send their children to school. Assume that enrollment drops by 50%. The number of teachers as well as their pay (i.e. salaries) stay the same during the same period. (a) Using the expenditure approach, determine how the GDP changes over time? Explain. 1 (b) Now suppose that all education services are provided by the private sector. Private schools charge each student a fee or tuition. Assume that the same pandemic hits, and half of parents choose not to send their children to school. The number of teachers as well as their pay (i.e. salaries) stay the same during the same period. Using the expenditure approach, determine how the GDP changes over time? Explain, and contrast your answer with the part (1a). (c) Consider the following additional information. Children who are not sent to school by their parents receive education from parents at home, i.e. they get homeschooled. Assume that the quality of home-schooling is as high as that of regular schools. For simplicity, assume that home-schooling does not imply a time cost to parents. What are the welfare implications of this for both (1a) and (1b)? Does the change in GDP reflect the changes in welfare accurately? Explain.

Answer 1

a): Expenditure Approach:

• The expenditure method is a system for calculating gross domestic product (GDP) that sums up consumption, investment, government spending, and net exports.
• It is the most common method to calculate GDP. According to this, everything that the private sector, including consumers and private firms, and government spend within the borders of a particular country, must be added up to the total value of all finished goods and services produced over a certain period of time.
• Expenditure method produces nominal GDP, which must then be adjusted for inflation to result in the real GDP.

Now in the given scanario it is mentioned that due to a pendemic the enrollment of students decreased upto 50% in the teaching while the number f teachers or the employes remains the same. Well a pandemic changs each and every aspect of every sector of an economy. Talking about the education sector  which runs entirely on taxes paid by the people, it would get hit the most via a pandemic and as a result there will be a drastic effect on the country's GDP. Considering the factors that consumer spending on goods and services

(C)

Will decrease over the time because of the shutdown of various services for some time, Investors spending on business will also become limited as product units stop functioning during this situtation(I), Exports(X) and Imports(I) activities will also be affected by this as all the national and international transport services stanstill at this time, only meergency services would be running, BUT the government spending on the goods and services will increase which means all the taxes that were initially collected for the pupose of paying the employes will be spend somewhere else and with the passing time all these factors will leave an impact on the GDP of an economy, Given the fact that these are the main aspects by which the GDP of an economy is measured(GDP=C+I+G(X-M)). In other words GDP will decrease over time and it is also possible in some cases that it becoms negative.

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