GDP, economic growth and unemployment

  1. What is the gross domestic product of a country? What is meant by ‘intermediate goods’

and are they included in the measure of GDP? Suppose that the following table represents

the goods and services produced in a very simple closed economy in 2016. Assume that

steel is used as an input in the production of cars. Using that information, calculate the

GDP for the year 2016?.

Product Quantity Price

Steel 1000 $100

iPods 5000 $300

Cars 500 $25 000

Legal Services 100 $2000


  1. Why does inflation make nominal GDP a poor measure of the increase in total production

from one year to the next? When measuring real GDP, what does the term ‘chain volume

measures’ refer to? Give reasons why measured GDP does not reflect total production in

an economy.


  1. What factors determine labour productivity? Outline the various actions the government

sector should take to promote growth.


  1. For each of the following, indicate if the person would be classified as employed,

unemployed, or not in the labour force and why: (i) a 65-year-old man who left his job and

is now working as a volunteer for 10 hours a week; (ii) a university graduate who has not

been able to find a position using her skills and is working as a wait-person for 30 hours a

week; and (iii) a manufacturing worker who is out of a job and has given up searching for a



  1. Suppose 180 000 people are employed, 20 000 people are unemployed, and an additional

50 000 people are not in the labour force but are of working age. Calculate the labour

force participation rate.

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