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    real GDP, employment, and real wage rate

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    1. Briefly explain the reasons why the following transactions would
    or would not be included in GNP.

    a. The members of the Legislative assembly vote for an immediate
    decrease in their salaries.
    b. A sports card dealer sells Bobby Orr rookie card for $500.
    c. You sell your old refrigerator to another person.
    d. An earthquake destroys part of the country.
    e. An owner receives rent on an apartment.
    f. You receive interest on a government bond.
    g. A woman purchases an insurance policy.
    h. A child receives an allowance from her parents.
    i. A carpenter is paid for repairing the family home.
    j. A monthly salary is paid to a domestic servant.

    2. How does GDP deflator differ from the Consumer Price Index
    (CPI)? Do the GDP deflator and Consumer Price Index always show the
    same increase in the rate of inflation?

    3. Compare and contrast the stabilization policy recommendations of
    monetarists and activists.

    4. The following activities took place in an imaginary economy last
    year:

    Item $
    Wages paid to labor 800,000
    Consumer expenditure 650,000
    Taxes paid by households 200,000
    Transfer payments 50,000
    Total profits made by firms 200,000
    Profits retained by firms 50,000
    Investment 250,000
    Interest earned by households 100,000
    Rent received by households 40,000
    Taxes paid by firms 50,000
    Government expenditure on goods and services 200,000
    Export of goods and services 250,000
    Import of goods and services 160,000
    Depreciation 50,000

    Calculate the following: (Show all steps)

    a. GDP at market price
    b. GDP at factor cost
    c. The government budget deficit
    d The change in net financial assets of (i) the private sector (ii) the
    government sector, (iii) the foreign sector.
    e. Indirect taxes less subsidies
    f Personal income
    g. Personal disposable income
    h. Savings
    i. Leakages and injections. Are they equal?

    5. Show from national income accounting identities that an increase
    in government budget deficit must imply a change in net export or the
    saving- investment balance.

    6. What determines the real interest rate, saving and investment in
    the Classical model? What impact does a change in the quantity of money
    have on the interest rate?

    7. Explain how real GDP, employment, and real wage rate are
    determined at full employment. If money wages are held momentarily above
    the level needed for full employment, what is the process by which full
    employment is achieved in the Classical model?

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    Solution Summary

    This post investigates real GDP, employment, and real wage rate.

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