Lecture Week 8

Equation
Equation between GDP and the four major expenditure components:

GDP=Y =C+ I +G+ NX

Consumption, Investments, Government Purchases, Net Exports

Tutorial GDP: Measuring Total Production, Income and Economic Growth

Question 2.8
Discuss possible differences in differences in GDP and HDI
High GDP doesn't necessarily translate to desirable living conditions. Aus
= 6th GDP, 3rd HDI
Income, Good health and education, less violence (peaceful
environment), democracy, low inequality.
United Arab Emirates has high GDP, but low HDI.. could be low HDI.
Women have lower equality standards so they don't have the opportunity
to engage in higher education ~50% less people going for higher
education brings down the average.
Higher literacy rates at enrolment = quality of education
HDI is a better way to measure living standards, because it incorporates
more aspects.
Question 3.3
Quatity of final goods and services produced decreased:
Can real GDP increase? VOLUME
Could nominal GDP increase? VALUE
Nominal GDP is the market value of final goods and services evaluated at current
year prices
Real GDP measures volume of final goods and services, holding prices constant
Example
2015: 100 shirts at $10 each
Nominal GDP = 100 x 10 = $1000
Real GDP = 100 Shirts
2016: 80 shirts at $20 each
Nominal GDP = 80 * 20 = $1600
Real GDP = 80 Shirts
Thus, even though the quantity decreases, Nominal GDP can still increase
depending on the price. However real GDP cannot increase because it is a
measure of the volume (quantity)
Question 4.3

Growth Rate=

Real GD P currentYear Real GD P previousYear

Real GD PPrevious

Question 5.13
Movement of workers from agriculture to manufacturing OR transformation of the
economy into a market sysem.
Which is more important for China's economic growth?
Process #1 must come to an end at some point. Can China survive without
agriculture? NO. More and more people move to manufacturing, THUS
there will be diminishing returns. Worker productivity between agriculture
and manufacturing would equalize.

However, transformation is likely to work better because #1 would come

to an end at some point, where market principles will bring about more
innovation and growth, techonological advances.

Question 6.1
Variety of production functions. Y axis: Output per hour worker. X axis Capital per
hour worker. Increases of capital per hour workers causes diminishing returns for
the output per hour worked. CURVE IS CONCAVED TO THE ORIGIN due to
DIMINSHING RETURNS
1. Per worker production function is the relationship between real GDP per
hour wrkers and capital per hour worked, holding the level of technology
constant.
2. Increases in capital per hour worker causes an upward movement along
the per worker production function
3. Technological changes causes the per worker production function to shift.
A) False. Movement along the production function where capital per hour worked
increases, not technological change.
B) False. Requires technological change. Even if there are diminishing returns to
capital, technological change can still occur.
C) True :)
Question 6.5
A) Only technology can cause the production function to shift. Thus, capital per
hour worked is increased and causes movement along the capital production
function.
B) Shift
C) Shift