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5 Common fallacies. Why are these statements wrong? (a) Unemployment benefit props up national income in years when employment is low. (b) A high per
5 Common fallacies. Why are these statements wrong? (a) Unemployment benefit props up national income in years when employment is low. (b) A high per capita real GNP is always a good thing. (c) In 2010, Crummy Movie earned E1 billion more at the box office than Gone With the Wind earned 50 years ago. Crummy Movie is definitely a bigger box office success. 6 Suppose a country is unable to borrow from abroad and must always equate the value of its exports and imports. If the private sector is saving a lot more than it is investing, is the government in surplus or deficit? Why? 7 Suppose the injections to the circular flow (investment I, government spending G, and exports X) do not depend on the current level of national output Y. In contrast, suppose leakages increase as output increases. (a) Suppose saving S = 0.1Y, If total injections equal 10, what is the equilibrium level of output? (Assume a circular flow model without government and foreign sectors) (b) Now suppose imports Z = 0.4Y, and taxes T = 0.5Y. If G = $40, is the government budget (G-T) in surplus or deficit? 8 GNP = $2000, C = $1700, G = 650 and NX = $40. (a) What is investment I? (b) If exports are 350, what are imports? (c) If depreciation = $130, what is national income? (d) In this example, net exports are positive. Could they be negative? 9 Should these be in a comprehensive measure of GNP: (a) time spent by students in lectures; (b) the income of muggers; (c) the wage paid to traffic wardens; (d) dropping litter? 10 The price of a new television has remained roughly constant for the last 30 years. What does this show? 11 You are head of the Leisure Commission that has to recommend to the government how to include the value of leisure in GDP. How do you come up with an estimate
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