Question

1. Despite the fact that investment only makes up about 20% of GDP, while consumption is about 60% (these numbers are averages over several years), investment is more important than consumption for understanding the short- term movements in GDP, why is that?

2. Why should the three approaches to measuring GDP yield the same number? In practice they produce somewhat different numbers, why do you think that is?

3. If the purpose of computing real GDP is to measure the quantity of goods and services, why do we not just count these without using prices?

Answer 1

Ans

1 Because investment is more volatile Whileas consumption is more stable in shortrun. Hence change in investment occurs quite often which affects AD and thus level of output, employment and economic activity

2 Because whatever is produced results in equal increase in income and income is always used for expenditure.

The difference is due to errors of calculation

. 3 Because often quality of commodities change Also not all commodities are equally important and price service one important function of showing importance of commodity to consumer