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Automatic stabilizers vs discretionary spending

(1) Discuss how Gross Domestic Product is calculated using the expenditure and the income approach. Explain the difference between Real and Nominal GDP.
Research the most recent data for REAL GDP growth in the US (www.bea.gov).

(2) Suppose an economy is going through a Recession -what type of Fiscal Policy needs to be implemented?
How do we understand the difference between Automatic Stabilizers and Discretionary Fiscal Policy?

Solution Preview

(1) The expenditure approach uses the total values of goods and services purchased in the economy. It includes government expenditures, household consumption, and business investments in inventory, taxes less subsidies, and so forth. The formal equation is given as Y = C + I + G + X, where C = consumption, I = investment, G = government spending, and X = net exports.

The income approach, on the other hand, considers all incomes accrued by economic agents. This includes all salaries paid to employees, corporate incomes, and so forth. The formal equation ...

Solution Summary

Gross Domestic Product calculations; difference between nominal and real GDP. Automatic stabilizers distinguished from discretionary spending.

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