Economics Questions Thread

[Hodgeyhodgey]

Define GDP (chain volume).

[Water]

Chain Volume GDP = Real GDP = GDP Adjusted For Inflation, to see if there is an increase in the volume of production of Australian goods and services.

[chrisjb]

Just curious, does anyone know how they came up with the term 'chain volume'?

[Water]

I think, there is a reason behind it.

Volume = Volume of goods and services, self explanatory.



However, I suspect Chain is derived from the comparison of one volume to the other, which is somewhat symbolic of a chain linking to one another.

[Hutchoo]

Hi guys, this is question 6C (Short answer) for chapter 2 in the Economics down under book.

Anyway, the question asks:
Apart from its effect on the level of AD, what is the connection between private investment spending and the economy's productive capacity (AS).

Thanks in advanced (Y)

[chrisjb]

Hi guys, this is question 6C (Short answer) for chapter 2 in the Economics down under book.

Anyway, the question asks:
Apart from its effect on the level of AD, what is the connection between private investment spending and the economy's productive capacity (AS).

Thanks in advanced (Y)

This was my thought process:
1)private investment spending would usually equal spending on capital/ something else that a business thinks will help it produce stuff.
2) Therefore private investment expenditure should increase if businesses plan on making more stuff.
3) Since much of private investment expenditure would be capital equipment, I'm gonna assume that productivity will also increase.
4) therefore greater productivity + businesses planning on making more stuff means greater AS.

Anyone able to confirm this? I haven't actually looked at this and just wrote what I thought the answer should be.

[Water]

Hey Hutchoo,


We know that AD = C + I + G + X -M

The question is tackling Investment, so from what we know so far, Investment is part of an aggregate demand. It is an aggregate demand, because firms demand capital items for future productions.

Over a long period of term, the economy will see the Investments of firms come to fruit. How is this so? This is because, as your investing into  new equipment, this stretches your productivity. In effect, as you increase your productivity(amount of output for fixed input), you will see a shift to your AS curve to the right, as firms will be willing to produce more at a lower price.

[Hutchoo]

Thanks for that guys


@Water - What do you mean by "... of firms come to fruit"?

[Water]

As in, when your investing in new equipments. It takes a number of years or months before we actually see the results. Like seedings, being grown to eventually become a fruit to eat. Its a saying xD

For Example "All my hard work is finally coming to fruit!"

[Hutchoo]

As in, when your investing in new equipments. It takes a number of years or months before we actually see the results. Like seedings, being grown to eventually become a fruit to eat. Its a saying xD

For Example "All my hard work is finally coming to fruit!"

ROFL == I didn't know it was a saying
Thanks Mr.Hokage :3

EDIT:
Another question

What do interest rates on loans represent? (2 marks).

[Water]

Lol, I really don't know the answer to this question. So I'll probably just give a random one.


What do interest rates on loans represent?

In terms of AD/AS
Interest Rates generally affect the amount of discretionary income available to a consumer. Because of this, as interest rates decrease/increase, this will directly affect AD,  impacting on the consumption side. This can also impact on the supply side of firms/businesses as this would directly increase/decrease the costs of factors of production.

[sam.utute]

I think it's come to "fruition." Come to fruit sounds a bit weird.
Interest on loans...
Different perspective to Water. Interest rates represent to cost of credit (i.e. the cost businesses and consumers must pay in order to access credit), as determined by demand and supply forces. For example, the lack of savings in Australia means interest rates will be increased (shift in the supply curve to the left). Just some general knowledge stuff you hopefully already know.

[Hutchoo]

Yeah, thanks for that Sam and Water
I was doing these so late that I forgot some of the stuff I knew already.

[Hodgeyhodgey]

In relation to the limitations of using GDP as a measure of economic activity, could someone give me a couple examples of the problems of using GDP?

Muchly appreciated! Haven't been able to think up a damn one..

[schmalex]

Does your textbook not go through this? It's mainly inaccuracies such as not measuring black market activity or certain home-based services (like cleaning or home maintenance) as well as the TOT problem discussed on another thread.

Can I just say that these threads shouldn't be the first place you go to with a tricky problem. You should really make sure you've gone through your notes and your textbook and only when you're sure you're completely stuck should you come here. You'll learn a lot better that way.