The Global Economy Project Paper 2

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Chapter 15, Question 11
Side Note: The following computations are rounded to the next whole number. Year| GDP| C| I| G| X-M| C%| I%| G%| X-M%|
1965| 719.1| 443.8| 118.2| 151.5| 5.6| 62%| 16%| 21%| 1%| 1975| 1638.3| 1034.4| 230.2| 357.7| 16| 63%| 14%| 22%| 1%| 1985| 4220.3| 2720.3| 736.2| 879| -115.2| 64%| 17%| 21%| -2%| 1995| 7397.7| 4975.8| 1144| 1369.2| -91.4| 67%| 15%| 19%| -1%| 2005| 12455.8| 8742.4| 2057.4| 2372.8| -716.7| 70%| 17%| 19%| -6%|

a) The part of the GDP that’s the most stable is consumption based on the smallest change from the year with the smallest contribution to GDP to the year with the largest contribution. b) Investment seems to be the most volatile as a % of GDP.

c) Ignoring net exports, the component that has grown the fastest as a % of GDP since 1965 is consumption.

Chapter 15, Question 14

According to Stone, author of Core Economics, national accounts ignore most nonmarket transactions (p. 422). Stone uses the example of a maid cleaning up a condo, which in turn causes GDP to rise. However, if someone performs their own cleaning for their condo, GDP is unaffected. The national accounts also fail to account for the environmental impact of economic activity. In addition, an article entitled “Limitations of National Income Accounting, listed the disadvantages of national income accounts which include errors in measurement, subcategories are misrepresented, and welfare is not measured. The Black Market, a market where regulations and laws are not practiced when there are exchanges of goods and services, and underground activities are not included when computing GDP. The reason for this is because there is not a method in accurately being able to measure black market activity. Another measurement error is inflation. “It is adjusted according to base prices and various other things and the range of possible inflation can be as much as 1% to 15% in some...
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