Question
The Republic of North Macedonia has an official GDP of $35 billion. North Macedonia wants to join the Balkan Alliance, a group of countries that
The Republic of North Macedonia has an official GDP of $35 billion. North Macedonia wants to join the Balkan Alliance, a group of countries that have formed a political, economic, and military partnership. However, the Balkan Alliance only accepts countries whose GDP is at least $50 billion.
North Macedonia's Prime Minister, Dimitar Kovacevski, has ordered you, North Macedonia's Official GDP Statistician, to get the country's reported GDP up over that $50 million standard. Unfortunately, the deadline to apply for admittance to the Balkan Alliance is only one month away, so there isn't time for the country to make any real changes to the amount of economic activity that occurs in North Macedonia. That is, you cannot change taxes or government spending on bridges or anything else that actually changes people's incomes, and you cannot discover new reserves of some valuable natural resource. Instead, you are going to have to change the way you measure GDP. As an added incentive, the Prime Minister warns you that failure to accomplish this task will result in your being imprisoned and forced to watch continuous reruns of North Macedonia's Got Talent.
This question has two parts. Please clearly label the parts of your answer as a. and b. Answers not so labeled cannot earn full credit, regardless of the quality of the answer.
a. You currently measure North Macedonian GDP by the income approach. Trying to be helpful, the Prime Minister suggests that you could measure GDP by the expenditure approach instead. Explain whether the Prime Minister's suggestion would succeed in increasing reported GDP or not. Your explanation should be sure to identify, explain, and apply any concepts that will be helpful in answering this question.
b. Regardless of your answer to part a of this question, identify and explain two ways that you could change the way you measure GDP that would make North Macedonia's GDP appear bigger than $50 billion. (That is, your answer must describe two changes other than switching from the income approach to the expenditure approach.) Be aware that the question asks you to identify and explain - answer must do more than merely identify two ways to make GDP look bigger - it must explain how and why each of those two changes would make GDP look bigger.
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