HW Chapter 2 - Universidad Iberoamericana UNIBE BBA in...

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Universidad Iberoamericana UNIBE BBA in International Business Applied Macroeconomics Professor Carmen Lucia Sanchez Homework Chapter 2 Beatriz Asilis (10-1013) Xasica Rosario (10-0147) Maria G. Liriano (09-0881) Valerie Bodden K. (10-0014) May 11, 2011 Santo Domingo, Dominican Republic Review Questions
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1) What are the three approaches to measuring economic activity? Why do they give the same answer? The three approaches are: the product approach, which measures economic activity by adding the market values of goods and services produced, except for goods and services used up in intermediate stages of production; the income approach, which measures economic activity by adding all income received by producers of output, with wages received by workers and profits received by owners of businesses; and the expenditure approach, which measures economic activity by adding the amount spent by all ultimate users of output. 3) What is the difference between intermediate and final goods and services? In which of these categories do capital goods, such as factories and machines, fall? Why is the distinction between intermediate and final goods important for measuring GDP? Intermediate goods and services are those used up in the production of other goods and services in the same period that that they were produced. Meanwhile, final goods and services are the end products of a process; in other words, they are the deliverables. Capital goods, such as land and factories, fall into the final goods category because the addition to productive capacity from new capital goods represents economic activity. The distinction between intermediate goods and final goods is important in measuring GDP because the purpose of economic activity is the production of final goods and services, where intermediate goods play a role, but are not counted because they are part of a process, not the final deliverable. 6 ) Define private saving. How is private saving used in the economy? What is the relationship between private saving and national saving? Private saving is the saving of the private sector. It is measured by subtracting consumption from private disposable. Spvt = (private disposable income – consumption). Private saving is used to fund new capital investment, provide the resources the government needs to finance its budget deficits, and acquire assets from lend to Page 2
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foreigners. The relationship between private and national saving is that private saving needs to be added to government saving to measure national saving. 7) What is national wealth, and why is it important? How is national wealth linked to national saving? National wealth is the total wealth of the residents of a country. It is important because it consists of the country’s domestic physical assets, and its net foreign assets. 9)
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HW Chapter 2 - Universidad Iberoamericana UNIBE BBA in...

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