Unit 3 Macroeconomic Questions
Question 1: No format required- minimum 200 words
If you were in charge of regulating the way gross domestic product was calculated, would you include illegal activities in the calculation? Why, or why not?
It would not be advisable to include illegal activities in the calculation of gross domestic product (GDP). GDP is a measure of the total economic output of a country, and including illegal activities in the calculation would not provide an accurate or meaningful representation of a country’s economic performance.
Including illegal activities in GDP would also raise ethical and practical concerns. Many illegal activities, such as drug trafficking or human trafficking, are harmful and destructive to individuals and communities. Recognizing these activities as contributing to GDP would legitimize and normalize them, which would not be appropriate.
Additionally, measuring and valuing illegal activities can be challenging due to the secretive and illicit nature of these activities. It would be difficult to accurately quantify the economic impact of illegal activities, and the data used to estimate their contribution to GDP would likely be unreliable or incomplete.
Overall, it is important to focus on measuring and promoting legal, sustainable, and ethical economic activities in the calculation of GDP. This will provide a more accurate and meaningful representation of a country’s economic performance and contribute to the well-being of its citizens.
Question 2:
Determine whether each of the following would cause a shift of the aggregate demand curve, a shift of the aggregate supply curve, a shift in neither curve, or a shift in both curves. If a shift is caused, indicate which curve shifts, and in which direction it shifts. What happens to aggregate output and the price level in each case?
- The price level changes.
- Consumer confidence increases.
- The supply of resources decreases.
- The wage rate decreases.
There is no minimum word requirement for responses. Please label each section of your response with the appropriate number (1, 2, 3, 4).
Question 3:
Compare the classical economic theory that was used prior to the Great Depression to the Keynesian theory used after the Great Depression. Your response must be at least 200 words in length.
Question 4:
Explain how gross domestic product is calculated using each of the following: the income approach and the expenditure approach. Your response must be at least 200 words in length
Gross domestic product (GDP) is a measure of the total economic output of a country and is commonly used to gauge the size and strength of an economy. There are two main approaches to calculating GDP: the income approach and the expenditure approach.
- The income approach involves calculating the total income earned by households and businesses in the economy during a specific period of time. This includes wages and salaries, rent, interest, profits, and other forms of income. To calculate GDP using the income approach, the following formula is used:
GDP = compensation of employees + gross operating surplus + gross mixed income
Compensation of employees refers to wages and salaries earned by workers. Gross operating surplus represents the excess of a company’s revenue over its costs (excluding wages and salaries). Gross mixed income includes mixed income earned by self-employed individuals and unincorporated businesses.
- The expenditure approach involves calculating the total amount of spending on goods and services produced in the economy during a specific period of time. This includes consumption by households, investment by businesses, government spending, and net exports (exports minus imports). To calculate GDP using the expenditure approach, the following formula is used:
GDP = consumption + investment + government spending + net exports
Consumption refers to spending by households on goods and services. Investment refers to spending by businesses on new capital goods, such as equipment and buildings. Government spending includes the purchases of goods and services by federal, state, and local governments. Net exports represent the difference between the value of goods and services exported by the country and those imported into the country.
Overall, both the income approach and the expenditure approach aim to measure the total economic output of a country by considering the various sources of income and spending within the economy. These approaches can be used together to provide a more comprehensive understanding of a country’s economic performance.