Submitted by: Asad Danish Siddiqui

1st Assignment

Submitted to: Mr. Faisal Sultan Qadri Course Instructor ECONOMICS ANALYSIS FOR MANAGEMENT IQRA University Gulshan Campus Karachi

Submitted by: Asad Danish Siddiqui 1462

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Submitted by: Asad Danish Siddiqui

1. Explain why an economys income must equal its expenditure? Economys Income equal to its expenditure because of house hold buy goods and services from firm to fulfill its needs from firms, and these expenditures flow through the markets for goods and service. The firm gets the money after selling the goods and services to household and uses this for to pay workers wages, landowners rent, and firm owners profit. This income flows through the markets for the factor of production (Land, Labor, Capital and entrepreneur) or to whom who provided their services for the production of goods. In this scenario money flows continuously from households to firms and then back to households. 2. Which contributes more to GDPthe production of an economy car or the production of a luxury car? Why? Ans: GDP is measure by Market prices because of market prices measure the amount people are willing to pay for different goods. So the production of a luxury car contributes more to GDP than the production of economy car because the market price of luxury car is higher than the price of economy car.

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Submitted by: Asad Danish Siddiqui 3. A farmer sells wheat to a baker for $2. The baker sold for $3. What is the total contribution of these transactions to GDP? Ans: when farmer sells wheat to baker $ 2 and baker uses wheat to make bread and sold in market $ 3, so the total contribution of this transactions to GDP is $ 3 because baker purchase wheat from farmer $2 and further processed it and sold in the market $3, so $3 is the market value of bread(final goods). 4. Many years ago Peggy paid $500 to put together a record collection. Today she sold her albums at a garage sale for $100. How does this sale affect current GDP? Ans: The sale of used records does not affect the current Production where as by definition GDP measure market value of all the goods produced in a country within a year. 5. List the four components of GDP. Give an example of each. National Income equation or GDP is Y= GDP because it is not a part of current

uses the wheat to make bread, which is

C+I+G+NX so the four component of GDP are C=Consumption: when household purchases the goods or services he is involve in consumption pattern for example purchase of new car.

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Submitted by: Asad Danish Siddiqui I=Investment: when households or firms invest money somewhere for the business purpose in order to make return in his investment. For example: purchases of raw material by a business. G=Government: equipment. NX= Net Export: when selling the goods and services outside the geographic boundary such that sale of wheat to other country in the world. 6. Why do economists use real GDP rather than nominal GDP to gauge economic wellbeing? Ans: Economists use real GDP rather than nominal GDP to gauge economic well-being because real GDP is not affected by changes in prices, so it reflects only changes in the amounts being produced. You cannot determine if a rise in nominal GDP has been caused by increased production or higher prices. 7. In the year 2001, the economy produces 100 loaves of bread that sell for $2 each. In the year 2002, the economy produces 200 loaves of bread that sell for $3 each. Calculate nominal GDP, real GDP, and the GDP deflator for each year. (Use 2001 as the base year.) By what percentage does each of these three statistics rise from one year to the next? Year Nominal GDP Real GDP GDP Deflator 4 of 5 All government Income and Expenditure such that purchases of Military

Submitted by: Asad Danish Siddiqui 2001 2002 Ans: 100 x $2 = $200 200 x $3 = $600 100 x $2 = $200 200 x $2 = $400 ($200/$200) x 100 = 100 ($600/$400) x 100 = 150

The percentage change in nominal GDP is (600 200)/200 x 100 = 200%. The percentage change in real GDP is (400 200)/200 x 100 = 100%. The percentage change in the deflator is (150 100)/100 x 100 = 50%.

8.

Why is it desirable for a country to have a large GDP? Give an example of something that would raise GDP and yet be undesirable.

Ans:

It is desirable for a country to have a large GDP because people could enjoy more goods and services. But GDP is not the only important measure of well-being. For example, laws that restrict pollution cause GDP to be lower. If laws against pollution were eliminated, GDP would be higher but the pollution might make us worse off. Or, for example, an earthquake would raise GDP, as expenditures on cleanup, repair, and rebuilding increase. But an earthquake is an undesirable event that lowers our welfare.

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