3. (a) Define the term Expenditure Approach
A Method used to calculate GDP by summing total spending on domestic output in an economy or that it is a method of calculating GDP based on summing consumption, investment, government spending and net exports.
(b) (i) Using the Data in Table 1 calculate the nominal GDP in 2009 and 2010 for the South Korean economy.
C + I + G + X – M = GDP
2009 = 386 + 205 + 89 + (412 – 334) = $758 billion (NGDP)
2010 = 408 + 223 + 93 + (448 – 356) = $816 billion (NGDP)
(ii) Using the GDP Deflator, calculate the real GDP for South Korea for 2009 and 2010.
To find the RGDP Formula
NGDP/Deflator x 100 = RGDP
$758/97 x 100 = $781.44b RGDP 2009
$816/100 x 100 = $816b RGDP 2010
(iii) Calculate the real economic growth rate for the South Korean economy for 2009 and 2010.
Rate of Change Formula
(New-Old)/Old x 100
816-781.44 / 781.44 x 100 = 4.42%
(iv) Describe the relative growth performance of the South Korean economy in 2010 compared with OECD countries.
Understand that the South Korean economy is growing faster in 2010 than the OECD average. The South Korean growth performance if 4.42% is higher than the 2.9% average growth rate of the OECD countries.
(d) (i) Outline one possible reason for the high level of investment in South Korea.
Low interest rates reduce the cost of borrowing for firms inducing then to borrow more in order to acquire more capital.
(ii) Explain 1 supply side benefit to the South Korean economy of a high rate of investment.
(iv) Describe the relative growth performance of the South Korean economy in 2010 compared with OECD countries.
Understand that the South Korean economy is growing faster in 2010 than the OECD average. The South Korean growth performance if 4.42% is higher than the 2.9% average growth rate of the OECD countries.
(d) (i) Outline one possible reason for the high level of investment in South Korea.
Low interest rates reduce the cost of borrowing for firms inducing then to borrow more in order to acquire more capital.
(ii) Explain 1 supply side benefit to the South Korean economy of a high rate of investment.
Investment will increase the quantity and/or quality of factors of production thus shifting the LRAS (or, Keynesian AS) to the right and that a rightward shift in the LRAS curve implies an increase in potential output thus enabling higher economic growth or rising employment or lower inflation.
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