MT445 Assignment Unit7
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 as growth in real GDP” (Hubbard, & O'Brien, 2012). Nominal GDA is GDA without any adjustments of inflation, which makes it seem like there is growth even when there isn’t. However during inflation is hard to estimate how much increase in nominal GDA there has been due to the increase in total production and how much of an increase there has been as well due to inflation,.
2. Which component of GDP will be affected by each of the following transactions involving Fly Cheap Airlines? If you do not believe any component will be affected, briefly explain why.
i. You purchase a ticket on a Fly Cheap Airlines to visit your niece: Consumption expenditure since this was a Spending by households on goods and services, not including spending on new houses. Yes it would affect GDP. ii. Fly Cheap Airlines purchases a new jetliner from Boeing: Investment expenditure since this was a Spending by a firm on new factories, office buildings, machinery, and additions to inventories, plus spending by households and firms on new houses. Yes it would affect GDP. iii. Fly Cheap Airlines purchases new seats to be installed on a jetliner it already owns: Investment expenditure since this was a Spending by a firm on new factories, office buildings,
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 as growth in real GDP” (Hubbard, & O'Brien, 2012). Nominal GDA is GDA without any adjustments of inflation, which makes it seem like there is growth even when there isn’t. However during inflation is hard to estimate how much increase in nominal GDA there has been due to the increase in total production and how much of an increase there has been as well due to inflation,.
2. Which component of GDP will be affected by each of the following transactions involving Fly Cheap Airlines? If you do not believe any component will be affected, briefly explain why.
i. You purchase a ticket on a Fly Cheap Airlines to visit your niece: Consumption expenditure since this was a Spending by households on goods and services, not including spending on new houses. Yes it would affect GDP. ii. Fly Cheap Airlines purchases a new jetliner from Boeing: Investment expenditure since this was a Spending by a firm on new factories, office buildings, machinery, and additions to inventories, plus spending by households and firms on new houses. Yes it would affect GDP. iii. Fly Cheap Airlines purchases new seats to be installed on a jetliner it already owns: Investment expenditure since this was a Spending by a firm on new factories, office buildings,