Nicole Becker - Assignment 1 Lessons 1, 2 & 3 The information below describes the real GDP per capita for the country of Utopia for the period of 1975 to XXXXXXXXXXmarks) If a new business cycle began...

Nicole Becker - Assignment 1
Lessons 1, 2 & 3
1. The information below describes the real GDP per capita for the country of Utopia for the period of 1975 to 1991. (10 marks)
1. If a new business cycle began in 1975, how long was this cycle?1975-1989
2. The peak occurred in which year? 1979 as GDP rate was highest at 9.028%The trough occurred in which year?1986 when GDP was lowest
3. How long was the expansion? 1976 to 1979
4. How long was the contraction? 1980 to 1986
5. Calculate change in Real GDP per Capita (Complete the table below)
    Year
    Real GDP per Capita
    Change in Real GDP per Capita
    1975
    6,000
    -
    1976
    6,300
    5
    1977
    6,700
    6.349
    1978
    7,200
    7.463
    1979
    7,850
    9.028
    1980
    8,250
    5.096
    1981
    8,450
    2.424
    1982
    8,550
    1.183
    1983
    8,575
    0.292
    1984
    8,510
    -0.758
    1985
    8,370
    -1.645
    1986
    8,100
    -3.226
    1987
    7,950
    -1.852
    1988
    7,925
    -0.314
    1989
    7,960
    0.442
    1990
    8,035
    0.942
    1991
    8,155
    1.493
2. What is the relationship between savings, capital formation, and consumption. (3 marks)
When income is generated it is either consumed or saved. Saving is another name for deferred consumption. So the sum of C and S must equal income at all times. Capital formation is the building up of physical capital, which requires investment. For investment savings are the only source. So lower C, higher S and higher is I
3. GDP is defined as the market value of all final goods and services produced within a country in a given period of time. In spite of this definition, some production is left out of GDP. Explain why some final goods and services are not included. (4 marks)
· It excludes goods that are self consumed as it is tough to impute a value to them. This is particularly important in less developed nations where agriculture for self consumption is the norm. such goods don’t enter the market and are consumed by those who produce it; so escape the GDP net.
· The definition leaves out nonmarket outputs which is a large part of total output in informal or unorganised sectors of a low developed economy.
· GDP ignores goods and services produced in the underground economy. This is purely because such activities are illegal as per law. These may include gambling and the sex industry.
4. Explain why the value of intermediate goods produced and sold during the year are not included separately as part of GDP, but intermediate goods produced and not sold are included separately as part of GDP. (4 marks)
Goods produced and consumed in production processes are called intermediate goods. Counting them as part of GDP will cause double counting. This is because their value becomes a part of the value of the final good. Counting them will mean that they are counted twice-separately and as a part of final good.
The goods that are produced and not sold are part of inventory. In the current year they are to be counted as final goods as they were not consumed in this period, but will be consumed...