1. Gross Domestic Product
a. The gross domestic product, or GDP, tells the dollar value of all the goods and
services produced within a country’s borders in a single year. It doesn’t include
used goods, since things can’t be counted multiple times (nonproduction
transactions) or things like drugs (illegal activity). The 4 components of GDP are
consumer spending, which is when people buy things, whether it be durable like
a house or a car, or nondurable, like groceries. Paying for service also counts as
consumer spending. The next component is investments, which account for
things like the stock market investments and online currencies like bitcoin. The
third component is government spending, but it only applies to government
spending that isn’t a transfer payment. So it wouldn’t be loans, but instead how
much money the government puts into things like city and highway repairs or
schools. The final component of GDP is net exports, which refers to the
difference between a country’s exports and imports. If the US made 300 billion off
of exports, and 200 billion off of imports, the net export value would be 100
billion.
b. Nominal GDP measures current prices, meaning it doesn’t account for inflation.
Real GDP adjusts for inflation. To calculate nominal GDP, you calculate the GDP
deflator by the real GDP, then divide that number by 100. To calculate real GDP,
divide the nominal GDP by the deflator, then multiply that number by 100.
c. To determine that the standard of living has risen, I would need to determine what
the inflation rate was during the time period of the rise in GDP. I would also need
to know how the population has changed within that time, and whether or not
there’s been substantial growth.
d. Gdp worksheet
i.
C
ii.
I
iii.
NC
iv.
C
v.
G
vi.
NC
vii.
I
viii.
I
ix.
NC
x.
I
xi.
C
xii.
I
xiii.
NC
xiv.
NX
xv.
C
2. Unemployment
a. There are 3 types of unemployment. The first is frictional, which describes people
who are willing able to work, but are in between jobs. This describes freshly
graduated college students or people who quit their jobs. It would also describe
c. People who benefit from inflation are people who own businesses where their
product’s price increases faster than how much its resources cost, because the
price is so much ahead of the cost of producing it that inflation won’t harm the
business owner’s profit margin, and those who borrow money at a fixed interest
rate, because a fixed interest rate doesn’t reflect how prices are going up, so they
aren’t hurt by rising prices because the amount that they pay stays the same
regardless of how much it would cost on an unfixed interest rate. People who
don’t benefit are those who lend money with a fixed interest rate and similarly
people with fixed incomes, because when inflation goes up so does the cost of
living, and people with fixed incomes won’t have incomes that can adapt to that
rise in cost. People who save their money are also hurt by inflation because the
money that they’re saving loses more and more of its value as time goes on and
prices get higher.
4. FRQ 1
a. The textbook wouldn’t be a part of the GDP because it’s used, meaning it’s
already been bought once so it can’t be counted.
b. The rent would be included because people are paying to live in the building
currently.
c. The commission would be included because it’s a fee one pays for a service,
which coins as consumer spending.
d. This wouldn’t be included because although the firm is owned by US citizens, the
factory is in another county and GDP doesn’t account for products produced
outside our borders
5. FRQ 2
a. (6 x 400) + (2 x 1000) + (2 x 800) = $6000
b. .
i.
(150-100)/100=50, so the inflation rate is 50%
ii.
6000/1.5= $4000
iii.
The real wages would decrease because the inflation rate is 30% greater
than the wage increase, so workers are still affected by rising prices.
iv.
The borrower with a fixed interest rate would be better off because while
prices are rising, they still only have to pay the same amount they did
before prices rose, which saves money.