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1) Define GDP (give a comprehensive definition!). Explain why it might be not correct to include...

1) Define GDP (give a comprehensive definition!). Explain why it might be not correct to include the value of intermediate goods when calculating GDP.

2) Some data that at first might seem puzzling: The share of GDP devoted to investment was similar for the United States and South Korea from 1960-1991. However, during these same years South Korea had a 6 percent growth rate of average annual income per person, while the United States had only a 2 percent growth rate. If the saving rates were the same, why were the growth rates so different?

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Answer #1

1. GDP is the monetary value of all finished goods and services produced within the domestic territory of a country in a year.

Intermediate goods are not ready for final consumption and require value addition. If we count, both finished and intermediate goods, it will be double counting.

2. The share of GDP to investment and saving rate are same in Korea and US but growth rate of GDP per capita is less in US as compared to Korea because of the superior economy policy of South Korea. It's export-oriented strategy of development of the multilateral institution. The labor force is better trained and works harder. Its people save more and borrow wisely. Policies are perhaps as activist but not grossly misdirected.

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