BSB115 Study Guide - Final Guide: Opportunity Cost, Income Approach, Absolute Advantage
GDP, Income and Economic Growth
QUESTION 1
If the quantity of final goods and services produced decreased, could real GDP increase? Could
nominal GDP increase? If so, how?
Quantity of final goods and services produced within a country effects on GDP.
If quantity decreased and influence of change of prices not exaggerated influence of change of
quantity then nominal GDP declined.
If quantity decreased and influence of change of prices exaggerated influence of change of quantity
then nominal GDP increased. And conversely.
If quantity decreased then real GDP declined. If quantity increased then real GDP increased too.
QUESTION 2
Each year the United Nations publishes the Human Development Report which provides information
on the standard of living in nearly every country in the world. The report includes data on real GDP
per person, but also contains a broader measure of the standard of living called the Human
Development Index (HDI). The HDI combines data on real GDP per person with data on life
expectancy at birth, adult literacy and school enrolment. The following table shows values for real
GDP per person and the HDI for several countries. (All values in the table are for the year 2012
expressed in 2005 US dollar terms.) Prepare one list ranking countries from highest real GDP per
person to lowest, and another list ranking countries from highest HDI to lowest.
Why might the rankings in the two lists be different?
- GDP does not account for income distribution
- The value of leisure is not included in GDP
- GDP is not adjusted for pollution or other negative effects of production
- GDP is not adjusted for crime or other social problems
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QUESTION 3
The ministry has asked you to evaluate two potential polices to promote economy growth (i)
increasing capital per hour orked ad ii prootig a ideas oo. Eplai ho eah poli ill
affect economic growth, with reference to the per worker production function (Figure 1).
(i) If the government increased capital per hour worked, then this policy would affect
economic growth by a movement along the production function line such as A to B. For
example, an increase in capital worked from $50000 to $60000 increase Real GDP per
hour worked from $15000 to $16000. Another example is an increase from $60000 to
$70000 in Capital per hour worked (B to C) results in Real GDP rising from $16000 to
$16400. Therefore, for each $10000 increase in capital worked per hour results in
progressively smaller increases in output per hour worked.
(ii) If the goeret prooted a ideas oo, the this poli ould affet a shift i the
produtio futio lie suh as E to B. We a assue that a ideas oo eas
that there is technological change in the economy. Evident in the per worker production
function, technological change shifts up the production function and allows more output
per hour worked with the same amount of capital per hour worked. For example, along
Production Function1 with $60000 in capital per hour worked the economy can produce
$15000 in real GDP per hour worked. However, an increase in technology that shifts the
economy to Production function2 makes it possible to produce $16400 in real GDP per
hour worked with the same level of capital per hour worked.
QUESTION 4
What are the different approaches to measuring GDP by ABS?
There are three approaches to measuring GDP by ABS. This includes the production approach,
expenditure approach and income approach. The production approach is the sum of value of all
goods and services produced by industries in the economy in a year minus the cost of goods and
services used in the production process, leaving the value added by the industries. The expenditure
approach is the sum of the total expenditure on goods and services by households, investors,
government and net exports. The income approach is the sum of income generated in the
production of goods and services which include wages, profits, interest earned and other employee
payments.
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Document Summary
Quantity of final goods and services produced within a country effects on gdp. If quantity decreased and influence of change of prices not exaggerated influence of change of quantity then nominal gdp declined. If quantity decreased and influence of change of prices exaggerated influence of change of quantity then nominal gdp increased. If quantity increased then real gdp increased too. Each year the united nations publishes the human development report which provides information on the standard of living in nearly every country in the world. The report includes data on real gdp per person, but also contains a broader measure of the standard of living called the human. The hdi combines data on real gdp per person with data on life expectancy at birth, adult literacy and school enrolment. Gdp per person and the hdi for several countries. (all values in the table are for the year 2012 expressed in 2005 us dollar terms. )
