# MT445 Assignment Unit7 Essay

1066 Words Dec 16th, 2014 5 Pages
Unit 7 Assignment

Student Name: Magida Taracena

1. Why does inflation make nominal GDP a poor measure of the increase in total production?
-Nominal GDP is the value of final goods and services evaluated at current-year prices and are calculated by summing the current values of final goods and services. In the other hand, the real GDP is and services in the base year to calculate the value of goods and services in all other years. “Real GDP holds prices constant, which makes it a better measure than nominal GDP of changes in the production of goods and services from one year to the next. In fact, growth in the economy is almost always measured
iv. Fly Cheap Airlines purchases 200 million gallons of fuel. This will not affect any component since expenditure of fuel is an intermediate payment and is not part of GDP.
v. A French citizen purchases a ticket to fly on a Fly Cheap flight from Paris to New York.: This is export expenditure and no, it would not affect GDP. vi. The city of Nashville agrees to spend funds to extend one of the runways so that Fly Cheap will be able to land larger jets: This is government expenditure and would affect the GDP.
3. Use the table to answer the following questions.
Year
Real GDP (Billions of 2000 Dollars)
1993
\$7,113
1994
7,101
1995
7,337
1996
7,533
1997
7,836

i. Calculate the growth rate of real GDP for each year from 1994 to 1997.
1994= ((7113-7101)/7113) x100 =. 17%
1995= (7337-7101)/7101) x100 =3.22%
1996= (7533-7337)/7337) x100= 2.67%
1997= (7836-7533)/7533) x100 = 4.02%

ii. Calculate the average annual growth rate of real GDP for the period from 1994 to 1997.
=(.17%+3.22%+2.67%+4.02%) = 10.08/4 =2.52%

iii. How does the average annual growth rate you calculated in (ii) above compare to the average growth rate the U.S. normally expects?
-It is actually much lower than the average growth rate the US normally expects.

4. In an open economy, trade is allowed between countries. Assume a consumer purchases \$1,000 worth of furniture manufactured in China. Answer the following:
a. Which component(s) of GDP are impacted by this purchase?
-“The BEA