Macro-Economics
Answer 1)
a) New Product: Invention of pocket sized computers will not be accounted in CPI Index because new products, whether manufactured or invented are not accounted immediately while calculating Consumer Price Index(CPI). Hence, CPI ignores the impact of cost of living and since new inventions like pocket sized computers usually decrease the prices, their exclusion from calculations results in overestimation of inflation.
b)New Product: Creation of mobile phone also accounts for exclusion of new products from CPI calculation. Since new products are not introduced in CPI basket immediately, their price effect on overall basket of goods and services is not accounted for. For Instance, since creation of mobile phones will improve the flow of information and will also reduce the cost of communication but such benefits are not included in CPI index.
c) Quality Change: Improvement in method and material used for making sports raquets accounts for unmeasured quality change in CPI index. In other words, CPI index never take into consideration any quality change that have occurred over the years in manufacturing of a good. Hence, it overestimates inflation.
d)Quality Change: Although her brother bought an upgraded version of word processing software at same price but still this transaction will not be accounted in CPI Index as it do not account for any quality change that has take place over the years in the production of technology .
e) Change in Relative Prices: Since, Samantha has shifted her purchase to peppermint tea because of relatively high price of Ginger Ale, her transaction will not be accounted in CPI Index as change in relative prices is not accounted immediately in CPI calculation.
Answer 2)
a)You buy a packet of crisp at the college cafeteria:
This will increase Consumption(C) section of GDP calculation as i have purchased a final good using money.
b) Aunt Asma buys stock in XYZ company:
Since Aunt Asma has purchased stocks, this will not be included in any component of GDP as stocks just represents transfer of ownership from one person to other. Hence, no good or service is produced in the whole transaction. However, if aunt Asma has paid any brokerage on her purchase, broker’s commission will be included in the GDP.
c) Royal Commission of Jubail(city) builds another classrooms at Jubail University college:
Building of a new classroom will be included increase the investment section of the GDP .
D)Ahmad receives allowance of 2000 Saudi riyals per month from the government:
Since allowance represents a transfer payment, this will not be included in any component of GDP as allowances being provided to Ahmad are not in return for production of any good or service.
Works Cited
Mayer, David. Counted or Not? 18 February 2014 <http://www.netplaces.com/economics/keeping-score-the-gross-domestic-product/counted-or-not.htm>.
