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# Gross Domestic Product (GDP)

Write a personal essay that focuses on Gross Domestic Product (GDP)

Introduction
Gross Domestic Product (GDP) is the total sum of all the gross value that has been added by all
the producers in the country in the economy together with any product taxes less any subsidies
that have not been included in the total value of the products. The calculations are done without
any deductions or provision for depreciation of the assets that are fabricated or depleted and also
the degradation of all the natural resources.
Part I (Exercise #1)
a) Present the information that you received in your project as a table.
2012 2013
I II III IV I II III
GDP (Real) 15,381.6 15,427.7 15,534.0 15,539.6 15,583.9 15,679.7 15,790.1
GDP
(Nominal)

16,041.6 16,160.4 16,356.0 16,420.3 16,535.3 16,661.0 16,857.6

Why was nominal GDP greater than real GDP in each of those quarters?
What were the percentage changes in Nominal GDP and real GDP for the most recent quarter?

2012   2013
III IV I II III
GDP (Real) 15,534.0 15,539.6 15,583.9 15,679.7 15,790.1
% change in real GDP   0.3 0.6 0.7
GDP (Nominal) 16,356.0 16,420.3 16,535.3 16,661.0 16,857.6

Economics 2
% change in real GDP   0.7 0.8 1.2

% change in real &
nominal

5.3 5.7 6.1 6.3 6.8

The first and the second quarter of the year 2013 registered a change of 0.6% and 0.7%
respectively from the previous quarters for the real GDP While the nominal GDP registered a
change of 0.8% and 1.2% from the previous quarters.
What accounts for the difference?
Nominal GDP measures all the goods and services value on current prices while real GDP uses a
base year to calculate its prices of goods and services.
Part II
Gross domestic product
Gross Domestic Product (GDP) represents the total worth or total value of all the goods and
services over a specified period of time or the size of an economy. It’s calculated as a
comparison to the past quarter or year. It can be calculated in two ways i.e. the income approach
or the expenditure approach.

2011 2012
I II III IV I II

Gross domestic
product

15,242.90 15,461.90 15,611.80 15,818.70 16,041.60 16,160.40

Gross national
product

15,491.20 15,712.10 15,884.00 16,091.00 16,289.60 16,419.20
Net national product 13,073.40 13,268.80 13,419.00 13,607.10 13,782.00 13,885.50
National income 13,156.70 13,320.40 13,502.00 13,603.60 13,845.00 13,875.30
Personal income 13,029.90 13,148.50 13,283.60 13,303.20 13,548.60 13,651.80
2012   2013
III IV I II III
Gross domestic
product

16,356.00 16,420.30 16,535.30 16,661.00 16,857.60
Gross national 16,603.70 16,677.30 16,772.70 16,907.90 —

Economics 3
product
Net national product 14,048.50 14,102.30 14,168.90 14,276.00
National income 13,962.10 14,204.00 14,324.50 14,438.50 —
Personal income 13,701.60 14,073.10 13,925.90 14,065.00 14,197.70
Write a report which contains the analysis of the results you received
The GDP grew by 4.6% in the year 2012 from the year 2012 while the income receipts from
other parts in world increased by almost 2%. The Gross national product also increased by 4.4%.
The national income increased by 4.3% in the year 2012 from the year 2011. The personal
income in the US increased by 4.2% from the previous year. The Gross national factor income
increased by 4.55% whiles the Net domestic purchases and the net domestic income increased
equally by 4.4%. The net national factor income increased by 4.7%.

1. What is the difference between gross domestic product (GDP) and gross national product
(GNP)?
Gross Domestic Product (GDP) is the total sum of all the gross value that has been added by all
the producers in the country in the economy together with any product taxes less any subsidies
that have not been included in the total value of the products. The calculations are done without
any deductions or provision for depreciation of the assets that are fabricated or depleted and also
the degradation of all the natural resources. GNP is the total market value of the products, labor,
services and property that have been supplied by the residents of a country. GDP refers to the
production that’s based geographically while GNP refers to ownership based production. GNP
equals to the value of finished goods together with services that have been produced with a year.
It measure value or costs of all goods and services produced by the residents their location
notwithstanding.
2. Based on the table, what calculations must you make to determine GNP from GDP?

Economics 4
Deduct the income of residents from foreign countries.

1. What is national income (NI)?
The total income of a country.
2. Which was higher in this year, GNP or NI? By how much?
GNP and a difference of \$24,616.6
3. What calculations must you make to determine NI from GNP?
To get the National income GNP you deduct from the GNP less the net US receipts (from
foreign countries) then add income receipts from the US less payments. Also deduct private and
government consumption of the fixed capital and also less any statistical discrepancy.
4. What was the main component of NI?
The main component of NI is the private and government consumption of fixed capital and also
the and also the net receipts (income receipts – income payments)

Part III

Table 1.7.5 Attached on Excel
2011 GDP(millions) Population GDP (PPP)
US

15,348,368.00 313232000 49000

Switzerland

335,394.29 7639961 43900

Sweden

371,728.98 9088728 40900

Russia

2,422,800.90 142517700 17000

Mexico

1,683,118.16 113724200 14800

Luxembourg

40,817.79 503302 81100

Japan

4,451,944.64 126475700 35200

China

11,362,103.00 1336718000 8500

List the countries by highest per capita GDP to lowest.

Economics 5

1. Luxembourg
2. Unite States of America
3. Switzerland
4. Sweden
5. Japan
6. Russia
7. Mexico
8. China

Does the order remain the same for total GDP as for per capita GDP?
No
If not, explain why is it different?
Countries with high population like China have a higher GDP but the average per Capita is lower
because of the high population.

Part IV

1. Find the rank in economic freedom (overall) of the countries listed on the table in part III of
the assignment.

rank country overall change
5 Switzerland 81 -0.1
10 United
States

76 -0.3
15 Luxembourg 74.2 -0.3
18 Sweden 72.9 1.2
24 Japan 71.8 0.2
50 Mexico 67

Economics 6
136 China 51.9 0.7
139 Russia 51.1 0.6

1. Find the rank in business, trade, financial freedom, and property rights of the countries listed
on the table in part III of the assignment.
2. Compare the rank in economic freedom (overall) and other indicators with the order of the
countries using the per capita GDP in the table in part III of the assignment.

Luxembourg tops the list on per capita GDP while on the Economic Freedom (overall) its ranked
number 15 in the world number and among the eight countries listed it comes a distant third.
United States of America is number two on the per capita GDP list and also on the Economic
Freedom (overall) while Switzerland is number three on the per capita GDP while on the overall
Economic Freedom it’s the best country among the listed eight. Russia is the last among the
eight countries on the Economic freedom list while number one hundred and thirty nine
worldwide and on the per capita GDP lists its number six. Japan is number five on both lists
while number twenty-four worldwide. Mexico is the seventh among the eight countries on the
per capita GDP while number six on the economic freedom list and number one hundred and
thirty six in the world.

Write a report in your own words the analysis of the results that you received.

The Economic Freedom list shows the performance of the economic freedoms of several
business operations, these are investment freedom, trade freedom, financial freedom, monetary
freedom, labor, business, freedom from corruption among others. A country like China has one
of the highest GDP (real) only second to the US but its huge population reduces its per capita
GDP to the lowest among all the countries while the economic freedom ranks it among the
lowest. This is because of its continued efforts to restrict trade and interfere with business

Economics 7
freedom and its reluctance to reign in corrupt government officials. Luxembourg has a
population that’s very small compared to China and its real GDP is also not much but because of
its population its per capita GDP is very high. The economic freedom rankings place it at number
three just behind Switzerland and the US. The US has a very large population and also a high
real GDP. It cannot be comparable to Luxembourg because of its huge resources and the stability
of its economic might.

Part I (Exercise #2)
An unemployed person is a person who belongs to the civilian labor force who is willing and
available for any chances of employment in his line of profession or liking, has worked for
wages of less than an hour per week and is actively involved in searching for employment.
Unemployment reduces when the economy grows and picks up an increasing trend which creates
opportunities for new entrants to be absorbed in the labor market but a few will certainly be left
without jobs. A country can pursue expansionary policies to correct trade imbalances and control
inflation. Other countries use different kinds of monetary policies to achieve their desired
economic growth.
What month (and year) is summarized? What was the unemployment rate for that month? How
does that rate compare with the rate in the previous month?
The year 2012. The unemployment rate was 8.1% while the year 2011 saw an increase in
unemployment levels which increased to 8.9% while 2010 increased further to 9.6%

Economics 8

What were the unemployment rates for adult women, teenagers, blacks, Hispanics, and whites?

2012-
Annual average of Unemployed persons by sex, race or ethnicity

%   women Black or African A Asian Hispanic/Latino Whites
16 years and
over

42.80% 13.80% 5.90% 10.30% 7.2

Teenagers   -2012 %

Unemployment

16 to 19
years

24%

18 to 19
years

27.30%
20 to 24     22.30%
Women
16 to 19
years

21.10%

16 t0 17
years

24.20%

18 to 19
years

19.50%

20 t0 24
years

12.10%

25 t0 54
years

7.10%

25 to 34
years

8.40%

25 t0 29
years

8.90%

30 t0 34
years

7.80%

35 to 44
years

6.80%

How did these rates compare with those a year earlier?

Economics 9
What factors make it difficult to determine the unemployment rate?
To determine the unemployment rate, 60,000 households have to be surveyed on a monthly
basis. If the people are not working they are grouped together as unemployed and if they are
working or have meaningful incomes they are grouped as employed. To carry out this exercise
and to gather these figures is not easy.
Some figures from the employment bureaus in the US have inaccurate figures as some people are
disillusioned and have given up hope for getting jobs and also some employers also don’t report
when retrenching employees.
Why is unemployment an economic problem?
Higher unemployment rates has a way of generating its own feedback loop, when people have
less amount of money to spend and the general demand falls across the country’s economy, then
employed people agree to take pay cuts to retain their jobs and the earnings drop. Despite the
improvement in the economy and the subsiding inflation, prices seem to rise more quickly than
the wages. (Keynes, 2007) Unemployment reduces the GDP per capita of the nation and it also
affects the economic growth as the disposable income of the citizens reduces.
What are the noneconomic effects of unemployment?
Some of the non-economic effects of unemployment are depression, loss of self esteem.
Unemployment levels indicate how a country is managing its economic affairs and how stable
the country’s economy is. The rate of unemployment reflects on the general performance of the
country.

Economics 10
Unemployment also causes or widens the income disparities in a country which results in a
larger gap between the rich or the poor. This has an adverse effect on the country’s economy.
Who loses from unemployment?
The major losers in unemployment are the unemployed citizens who directly lose or are
disadvantaged as they have to depend on others or the state for upkeep and welfare. The
government loses both the taxes it would have generated from the income taxation of the
unemployed citizens and also from the services of those who are unemployed. ( Sullivan , 2003)
Part II
What year (and year) is summarized? What was CPI-U for that year?

PPI CPI GDP
2010 3.8 1.5 103.7
2011 4.7 3 105.5
2012 1.3 1.7 106.3
`
The year is 2012. CPI- U = 1.7 – 3 = -1.3/1.7*100 = 76.5%
What was the rate of inflation (percentage change in the CPI-U) for the year? How does that
rate of inflation compare with the rate in the previous month?
The rate of the year 2012 has decreased by 76.5% from the previous year. In the year 2012 the
inflation rate was 1.7% while in the year 2011 it was 3%.
Which two categories of goods or services had the greatest price increase for the month?
Which two categories of goods or services had the lowest price increase (or greatest price
decrease) for the month?

Economics 11
Who loses from inflation?
The citizens lose most of their savings as prices of consumer goods and other services and
products increase. The government also loses as the level of investment decreases which denies
tem the revenue they would have collected as taxes. The level of unemployment also increases
and the taxes that the government collects for employees as income taxes also decreases

Part III
CPI, PPI and GDP deflator
CPI is the fixed –quantity basket that consists of goods and services for consumption that are
constantly bought on average by the urban consumers. It’s a ratio that indicate the costs of
obtaining or purchasing some quantity of some items that are constantly bought in two different
periods of time equal time intervals. The Producer Price Index/PPI is an average of similar
indexes that indicate the change in selling prices from the seller’s perspective. The differences in
the sellers or the purchasers’ costs or prices may be because of the government taxes or subsidies
or the distribution costs.
Economic Report of the President

Economics 12

197019751980198519901995200020052010
-20
0
20
40
60
80
100
120
140

Total finishedgoods
All Items
GDP I.P.D

b) Write a report which contains the analysis of the results that you received.

Deflator refers to a value that can be utilized for it to be measured in terms of the base year while
the implicit GDP index. The graph above shows the behavior of three indexes, total finished
goods, all items and the GDP deflator.GDP deflator has sharp corners that are not relatively steep
but it’s generally increasing as the year’s progress. The values of the GDP deflator variations are
relatively high compared to the all items and total finished goods and its graph is far above the
rest.

How inflation is measured? What year had the lowest level of inflation? What year had the
highest level of inflation?
Inflation is the average rate at which the prices of all goods and services are increasing and the
negative impact on purchasing power. To calculate the inflation rate, we simply work out the

Economics 13
differences between the two consumer price indexes i.e. the previous year’s CPI from the current
year’s CPI and multiply the difference by 100 to get a percentage.

References
Keynes, J (2007). The General Theory of Employment, Interest and Money . Basingstoke,
Hampshire: Palgrave Macmillan.
Sullivan , S. (2003). Economics: Principles in action. Upper Saddle River, New Jersey Pearson
Prentice Hall.

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