Assume that a country has a closed economy that has only three goods/services. That is, there is no trade with other countries, so the economy has consumption, investment, and government spending, but no net exports. Each year, the economy produces three haircuts that cost $10 each two factory machines that cost $100 each one highway repair that costs $500 1a. What is total GDP for this economy? 1b. What percent of GDP is consumption? 1c. What percent of GDP is investment?
ACTIVITY 4: Assessment
- Assume that a country has a closed economy that has only three goods/services. That is, there is no trade with other countries, so the economy has consumption, investment, and government spending, but no net exports. Each year, the economy produces
- three haircuts that cost $10 each
- two factory machines that cost $100 each
- one highway repair that costs $500
1a. What is total
1b. What percent of GDP is consumption?
1c. What percent of GDP is investment?
1d. What percent of GDP is government spending?
- Suppose an economy’s nominal GDP increased 3 percent in 2008. Why is this information alone not enough to determine whether the economy experienced economic growth? What other information would you need?
- Why is GDP not the best measure of standard of living? What other factors should be considered when one determines a country’s standard of living relative to other countries?
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