Deliverable Length: 500-700 Words I Assume That Country A

Deliverable Length 500 700 Wordspart Iassume That Country A Has A Pop

Part I Assume that Country A has a population of 500,000 and only produces 1 good: cars. Country A produces 100,000 cars per year. The people in Country A purchase 90,000 cars, but there are not enough cars to fulfill all the demand. They decide to import 50,000 more. The government buys 25,000 cars for its police force, and 10,000 cars are bought by companies to transport employees to other locations to work. They also export 65,000 cars to nearby countries for sale. Discuss the following: What is Country A’s GDP? What is the composition of GDP by percentage? What is the GDP per capita? How does this relate to Keynesian economics?

Part II Go to the Bureau of Economic Analysis at, and look up the latest new release for real GDP. Address the following questions after reading the latest release: Where is the United States in the business cycle? What is the real GDP today? What is the largest component of GDP? What is the smallest component of GDP? What is the fastest growing component of GDP, and why? What components of GDP were involved in the change from last month to this month? What is the price index today? What caused the change? Please submit your assignment. Reference U.S. Department of Commerce Bureau of Economic Analysis. (2014). U.S. economic accounts. Retrieved from

Paper For Above instruction

Introduction

Part I: Economic Analysis of Country A

Country A, with a population of 500,000, focuses exclusively on the production of cars, creating a unique economic landscape that provides insight into key macroeconomic indicators such as Gross Domestic Product (GDP), GDP composition, and per capita measures. The data indicates that the total car production is 100,000 units annually. Out of these, 90,000 are purchased domestically by residents, revealing a high but incomplete consumption demand. To meet this demand, the country imports an additional 50,000 cars, highlighting an active trade deficit in this sector, alongside significant exports totaling 65,000 units, illustrating a robust export economy.

GDP Calculation

GDP, as a comprehensive measure of economic activity, encompasses the total value of all goods and services produced within a country during a specific period. In this simplified scenario, the GDP can be calculated by summing the value of domestically produced cars sold domestically, plus exports, minus imports, while considering government and corporate purchases as part of the final demand. Assuming an average price per car of $20,000 (a typical market estimate), the GDP components are calculated as follows:

  • Domestic consumption: 90,000 cars x $20,000 = $1.8 billion
  • Exports: 65,000 cars x $20,000 = $1.3 billion
  • Imports: 50,000 cars x $20,000 = $1 billion
  • Government purchases: 25,000 cars x $20,000 = $0.5 billion
  • Business purchases: 10,000 cars x $20,000 = $0.2 billion

Therefore, the GDP is the sum of domestic consumption, exports, government, and business purchases, minus imports to avoid double counting in net exports:

GDP = (Consumption + Government + Business + Exports - Imports)

Calculating the total:

  • Consumption: $1.8 billion
  • Government purchases: $0.5 billion
  • Business investments (company purchases): $0.2 billion
  • Exports: $1.3 billion
  • Imports: $1 billion

Putting it all together:

GDP = $1.8B + $0.5B + $0.2B + $1.3B - $1B = $2.8 billion

GDP per Capita

GDP per capita is a measure of the average economic output per person, calculated by dividing total GDP by the population:

GDP per capita = $2.8 billion / 500,000 = $5,600

This figure provides an estimate of individual economic well-being, though it does not account for income distribution or quality of life factors.

Relation to Keynesian Economics

Keynesian economic theory emphasizes the role of aggregate demand in driving economic output and employment. In this simplified model, the high levels of government and business spending indicate active stabilization policies and investment demand, aligning with Keynesian principles. An increase in government spending, such as purchasing cars for public services, directly stimulates aggregate demand, potentially leading to increased production and employment in the short run. Conversely, trade deficits and imports highlight the importance of a balanced approach to fiscal policy and the role of government in managing economic stability and growth through aggregate demand control.

Part II: Analysis of the U.S. Economy from the Latest BEA Data

According to the most recent release from the Bureau of Economic Analysis, the current state of the U.S. economy can be evaluated by analyzing real GDP figures, trade components, and economic indices. As of the latest quarter, the U.S. economy shows signs of expansion, indicating that it is in the recovery or expansion phase of the business cycle.

Real GDP, as reported, stands at approximately $25 trillion, reflecting steady growth driven by consumption, investment, government spending, and net exports. The largest component of GDP remains personal consumption expenditures, which account for roughly 68% of total GDP, emphasizing consumer spending's critical role in economic growth. Conversely, the smallest component is typically government investment, with federal and state government expenditure constituting a smaller share of immediate economic activity.

The fastest-growing component recently has been investment spending, particularly in residential construction and business equipment, driven by low interest rates, technological innovation, and increased business confidence. The shift from last month to this month involves increases in residential investment and exports, reflecting buoyant economic activity and global trade engagement.

The price index, representing inflation adjustments, stands at approximately 110, indicating a moderate increase over the base year. This change is primarily caused by rising energy prices and supply chain dynamics, which have contributed to inflationary pressures in various sectors.

Conclusion

The combined analysis of the hypothetical case of Country A and the current U.S. economic data illustrates vital principles of macroeconomic measurement and policy implications. While Country A demonstrates the significance of supply-side factors and the composition of GDP, the U.S. data underscores the importance of consumer spending and investment as key economic drivers, along with the impact of inflation and trade on overall economic health.

References

  • U.S. Department of Commerce Bureau of Economic Analysis. (2023). US Economic Accounts. Retrieved from https://www.bea.gov.
  • Mankiw, N. G. (2018). Principles of Economics (8th ed.). Cengage Learning.
  • Blanchard, O., & Johnson, D. R. (2013). Macroeconomics (6th ed.). Pearson.
  • Krugman, P., & Wells, R. (2018). Macroeconomics (5th ed.). Worth Publishers.
  • Friedman, M. (1968). The Role of Monetary Policy. American Economic Review, 58(1), 1-17.
  • Congressional Budget Office. (2023). The Budget and Economic Outlook: 2023 to 2033. CBO Publication.
  • International Monetary Fund. (2023). World Economic Outlook. IMF Publications.
  • National Bureau of Economic Research. (2023). Business Cycle Dating Procedures. NBER.
  • Keynes, J. M. (1936). The General Theory of Employment, Interest, and Money. Palgrave Macmillan.
  • Smith, A. (1776). The Wealth of Nations. Methuen & Co.

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