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Economic Terms and Limits of GDP Usefulness

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For first year students using unfamiliar or finding the right terminology when asked to discuss certain aspects of a field of study can be challenging. Economics is no different from other professions that use certain abbreviations in which to explain segments of their specific field. GDP per capita is one example that economists use to define and indicate the health of the economy. In analyzing the GDP per capita of a country, such as Saudi Arabia, it would be beneficial to understand and use the economic terminology that explains and defines the country's overall economic health and know the differences between indicators. This purpose of this exercise is provide a glossary of economic terminologies so that a first year student can fully express terminology and an expanded presentation of what the GDP per capita involves and what it does not capture when talking about the economic health of a nation. For example, GDP per capita, while it can indicate how the general population is doing economically, it does not define the general well-being of the average person, such as enduring the impact of a negative environment, non-existence of leisure time, or scarcity of resources (Callen, 2012).

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Glossary of Economic Indicators

a. GDP (Gross Domestic Product: The sum of the gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. Formula: GDP = Consumption + Investment + (Government Spending) + (Exports - imports).

b. GDP per capita: The approximation of the value of goods produced per person in the country, equal to the country's GDP divided by the total number of people in the country. Formula: GDP per capita = GDP divided by the Population.

c. GNP (Gross National Product): The estimated value of the total worth of production and services, by citizens of a country, on its land or on foreign land, calculated over the course on one year. Formula: GNP = GNP + NR (Net Income inflow from assets abroad or Net Income Receipts) - NP (Net Payment outflow to foreign assets).

d. GDP PPP (Purchase Power Parity): The gross domestic product converted to international dollars using purchasing power parity rates. An international dollar has the same purchasing power over GDP as a U.S. dollar has in the United States. Purchasing power parities (PPPs) are the rates of currency conversion that eliminate the differences in price levels between countries. Formula: GDP PPP = GDP divided by the PPP exchange rate.

e. GNI (Gross National Income): The gross domestic product (GDP) plus net receipts of primary income (employee compensation and investment income) from abroad. GDP ...

Solution Summary

Glossary of economic terminologies and an expanded presentation of what the GDP per capita involves and what it does not capture when talking about the economic health of a nation. 881 words with references.

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See Also This Related BrainMass Solution

International Econ - The Euro and Policy

1. Terms of trade refers to?
a. What goods are imported
b. What goods are exported
c. The volume of trade.
d. The prices at which trade occurs.

2. The use of real GDP rather than nominal GDP allows us to?
a. Measure the value of output in a given year at constant prices that have been adjusted for changes in inflation.
b. Compare changes in real output rather than changes in prices.
c. Derive growth in per capita real GDP by subtracting the population growth rate from the growth in real GDP.
d. To see the actual money price paid for a good.

Short Answer

1. Using the graph shown above, what are the feasible production points in the economy?

3. According to classical trade theory, the labor theory of value means?
a. That the only factor used to produce goods is labor.
b. The price of a good reflects the labor and capital used in its production.
c. The price of a good reflects the labor used in its production.
d. In autarky, the value of a good is independent of its price.

4. If we assume constant returns to scale in production, what is the relationship between additional inputs and output?
a. As inputs increase, the increase in output is by a greater proportion.
b. As inputs increase, the increase in output is by a smaller proportion.
c. As inputs increase, the increase in output is by an equal proportion.
d. As inputs increase, there is no change in output.

5. When it takes less labor input to produce a good in Country A than in Country B, we know that country A has:
a. An absolute advantage.
b. A comparative advantage.
c. Constant returns to scale.

6. The slope of a country's PPF reflects?
a. The opportunity cost of producing one good in terms of the other.
b. The opportunity cost of consuming one good in terms of the other.
c. The amount of labor used to produce one good in terms of the other.
d. The market price of one of the goods.

7. Suppose two countries have labor inputs as represented in the table below. Define which country has an absolute advantage and comparative advantage in the two goods
County
A B
S 9 4
T 12 3
a. Country A has an absolute advantage in the production of both goods and a comparative advantage in the production of good T.
b. Country B has an absolute advantage in the production of good S and a comparative advantage in the production of good T, while Country A has an absolute advantage in the production of good T.
c. Country B has an absolute advantage in the production of good S and a comparative advantage in the production of good S, while Country A has an absolute advantage in the production of good T.
d. Country B has an absolute advantage in the production of both goods and a comparative advantage in the production of good T.

8. Based on the table, what are the boundaries for the equilibrium terms of trade.
a. Between 1/2 and 1.
b. Between 3/4 and 4/3.
c. Between 3/4 and 2.
d. Between 2/3 and 4/3.

9. Based on the graph above for Country A and Country B, once trade begins, Country A specializes in the production of?
a. Good S.
b. Good T.
c. Both goods.

10. Based on the graph above for Country A and Country B, once trade begins, Country A's trade triangle is?
a. JIH
b. KOJ
c. DOJ

11. Based on the graph above for Country A and Country B, once trade begins, Country A's consumes this amount of its own output?
a. JH
b. OD
c. HI
d. OH

12. Based on the graph above for Country A and Country B, once trade begins, Country B's exports equal?
a. OM
b. MP
c. OP
d. OQ

Short Answer
2. Answer the following questions regarding the European single currency
a. When does the euro start and what is the primary goal of the currency union?
b. List two economic criteria that a country must satisfy to become a member of the euro and briefly describe the economic implications of each criteria.
c. Assume that a country that is a member of the European currency union falls into an economic recession. What obstacles do the currency requirements place regarding domestic economic policy to counter the recession?

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