According to the IMF, China's economic growth slowed to 6.9 percent in 2015 and is forecast to moderate to 6.5 percent in 2016 and to 6.2 percent in 2017 as the economy rebalances the shift away from manufacturing and investment to services and consumption. The fund also forecast a decline in the growth of US GDP in 2016 due to a weak energy sector, a strong dollar, and turmoil overseas. Citigroup estimates that each 1 percent drop in the US economy will shave 1.3 percent off China's growth, because Americans are heavy users of Chinese products.

a.Use the expenditure approach for calculating China's GDP to explain why each 1 percent drop in the US economy will shave 1.3 percent off China's growth.

b.Why might China's recent GDP growth rates overstate the actual increase in the level of production taking place in China?

c.Explain the complications involved with attempting to compare the economic welfare in China and the United States by using the GDP for each country.

Classify each of the following items as consumption or investment goods/service or both. Justify your answers.

a.A haircut

b.A share of stock

c.The Trans-Canada highway

d.A ski lift

e.An unsold truck in a GM plant in Ontario

If the nominal GDP is $559 billion in the base year, and it rises to 660 in year 1 and 754 in year 2, calculate the real GDP in each year, given that the price index has risen from 100 to 113.5 in year 1 and up to 120.3 in year 2. If the price index 10 years before the base year was 72.4, and the nominal GDP for 10 years before the base year was 212.6, calculate the real GDP for that year.

4.The average inflation of India in 2010 reached 12.1 percent. During the same period, government deficits became large, and interest rates increased.

a.Suppose the Indian government reduces its deficit and gets back to a balanced budget. If other things remain the same, how will the demand or supply of loanable funds in India change?

b.With economic growth forecast to slow, future incomes are expected to fall. If other things remain the same, how will the demand or supply of loanable funds in India change?

c.Distinguish between the crowding-out effect and the Ricardo-Barro effect. How are the two effects related?