Question
a.Briefly discuss why the domestic work undertaken by a stay at home mother or drug dealers are not included as part of GDP? Provide an
a.Briefly discuss why the domestic work undertaken by a stay at home mother or drug dealers are not included as part of GDP? Provide an example of such a situation
b.In the country of Hypothetica, we have the following information for the year 2015:
*Consumption totalled $2 billion, but 25% of this total consisted of goods which were initially sold in 2014.
*A total of $250 million worth of new housing stock was sold.
*Labour wage income was $150 million.
*Businesses invested $100 million dollars in new capital (i.e. machinery) stock.
*Businesses also bought $200 million dollars worth of company shares on the stock exchange.
*Foreigners with working visas living in foreign-only households bought $100 million worth of locally made goods and services.
*The government spent $500 million building roads.
*Hypothetica is a closed economy, thus they are no exports and imports.
(i)Calculate and explain how you obtained the figure (i.e. what did you count, and what did you exclude) for Hypothetica's consumption in 2015
(ii)Calculate and explain how you obtained the figure (i.e. what did you count, and what did you exclude) for Hypothetica's investment in 2015
(iii)What was Hypothetica's GDP in 2015 using the expenditure method? Explain your answer
c.The standard of living in Argentina is higher than the standard of living in Luxembourg purely because the size of Argentina's real GDP in 2018 (using 2010 constant prices) was USD446,880.91 million as opposed to Luxembourg's USD67,301.21 million (figures from the World Development Index Database).
Do you agree or disagree with this statement? Refer to the UN Human Development Index to Justify your answer.
a.A house is worth $400,000 in 2020, but was worth $150,000 in 1990. Using prices in 1990 as the base year, know that prices in the economy have grown on average by 1.50 times between 1990 and 2020.
(i)If the price of the house had risen at the same rate as average prices, what would the house be worth in 2020? Briefly explain your answer.
(ii)Without doing any calculations, but simply based on information in the question and your response in (i), would you be better off having bought this house in 1990 or 2020? Briefly justify your answer.
(iii)Calculate the rate of inflation between 1990 and 2020.
b.Assume wage negotiations are done and agreed based on the CPI. Briefly explain what happens to employers and employees when the CPI is upwardly biased (i.e. the CPI is estimated to be higher than what it should be).
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