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One problem in using exchange rate when comparing GDP per capital between countries is that is fluctuates a lot. A way of avoiding dependence on exchange rate is to use purchasing power.
GDP is a flow!
Lastly, note that GDP is a flow variable, not a stock variable. By a flow variable we mean a variable which is measured in something per unit of time. If you fill a bath tub you may fill it at 40 liters per minute - a flow - whereas the tub itself may comprise 200 liters - a stock. Similarly, income is flow (you may make 9 euro per hour) whereas the amount of money you have in your bank account is a stock (you would never claim that you have 2400 euro 'per month' in your account - you have 2400 euro period).
GDP, being a flow, isn't a measure of the total wealth of a country however a measure of the 'income' of the country during a particular period of time. Sure if GDP is high, it is very likely that total wealth of the country is increasing over time (some wealth is lost to depreciation). Consequently there is often a connection between what we perceive as a 'rich' country and a high GDP per capita.
A significant argument for the augmentation has to do with concept of money illusion. Money illusion means that you care about nominal rather than real amounts. Imagine that your s
The Transmission Mechanism The mechanism by which the changes in monetary policy affect aggregate demand is called 'transmission mechanism'. Two stages in transmission mechanis
the circular flow of income in an governed economy
impact of change in government expenditure and tax on fiscal policy
1. Suppose the demand for a product is given by QD = 2000 - 25P. a) Calculate the Price Elasticity of Demand when the price is $30. b) What price should the firm charge if it
Equilibrium in both the goods and in the money market If both the goods- and the money markets are to be in equilibrium... ...if P increases, Y must fal
Consider the following: An economy is found to have output, y = 20000 Also assume that the government runs a deficit where tax revenue T= 4000 and government expenditures G=5000
Q. Explain function of AS-AD model? The function of AS-AD model is to extend IS-LM model so that we can analyze situations where Y > Y OPT . To achieve this, we should make P e
if we impose any rule and regulation on clasical model like not expoit polutionso what is effect on factor of clasical model
Aggregate Supply and Demand 1. The equation for expenditure GDP is 2. Sketch a fully labeled aggregate supply and demand diagram for an economy that is in full employment equ
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