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47

Trade creates value. Previously, Kate preferred spending \$50 on food at Alice's restaurant (rather than cook her own food). And Alice preferred spending \$50 getting her hair cut at Kate's (rather than cut her own hair). That Kate must now cook her own food and Alice cut her own hair means that value has fallen (where value is broadly defined as the degree ...


19

Both Alice and Kate have bills to pay, regardless of whether they are earning money or not. Restaurants and salons have to pay rent and maintenance on their properties whether they are in business or not. They both need to feed themselves and possibly their families whether they earn income or not. They need electricity and water and other utilities in ...


13

Trade is good because it creates efficiency. Alice has invested in her kitchen and knows the supply chain of ingredients, and due to the efficiency of her business, she can sell a meal for $50. If Kate wants to cook the same meal, she'll have to buy all the necessary equipment and ingredients, and spend time learning cooking techniques, and by the end, she'...


7

Most people aren't Alice and Kate. GDP is a measure of the total goods and services produced within an economy. The point is measuring total production, not measuring how much money is changing hands. There are a couple of things going on here: In the example you mention of Alice and Kate, there is presumably some reason why they were paying each other ...


7

Let's consider another example. I'm an automotive manufacturing service engineer; I build and repair machines that are used to build and repair cars. I use the money I earn to buy a variety of things, including, say, gasoline. Of course, if all of the automotive manufacturing service engineers stop working, that's no big deal. People can just build their ...


5

You answered question (1) with your own chart. The United States had a “high” debt-to-GDP ratio in World War II - and there was no subsequent depression. (There was a sharp recession as a result of demobilisation, but that was short-lived.) For a country that borrows in its own currency, there is no obvious reason how a high debt-to-GDP creates recession ...


5

You seem to be having some misconception how these transfers work Printing money and giving to the poor causes inflation. Increases demand and hikes prices. This is basically certain. This is not generally how government transfers are done. In fact it is very rare to see in practice transfers that are payed by directly printing money. However, if it ...


4

You're correct that just because 1% of the economy is in mineral extraction, doesn't mean that stopping it would reduce global GDP by 1%. Similarly, roughly 10% of global GDP is on energy expenditure, and about the same on food, but if we stopped either of those, global GDP drops to pretty much zero. Do bear in mind that we will stop using coal, oil and gas ...


4

The table you are looking at is a GDP expenditure measure. But this ignores the fact that services are involved in the costs of goods purchased, and that goods are involved in the cost of services purchased. For example, if you buy a cake in a supermarket, the price reflects not just the food manufacturing industry, but also agriculture, transportation, ...


4

NOTE: the question has been modified to refer to a global recession (or I missed the global qualifier). This answer is for a national recession. The answer by @Fizz discusses the global case. I will leave my answer unchanged. There is no international standard for a recession definition. Definitions are country-specific. For example, in the United States, ...


4

Scenario “C” does not specify “unexpected.” Since greater growth was expected, planned inventory investment would rise to meet higher expected demand.


4

In addition to the +1 answer of @KennyLJ which corrects the misconception beteen money and value, let me address the question in your last paragraph directly. Even if we could assume for a sake of the argument that we can manage to perfectly redistribute all income from people and businesses who are still able to operate and produce value (such as netflix, ...


4

Healthcare spending as a percentage of GDP is the measure of spending relative to the value of entire nations output at market prices in a given year. I suppose you can call the total output the value of the economy so you could say that although note that economy is a wider concept that would normally include things omitted by GDP which can only measure ...


4

A firm's contribution to GDP isn't revenues. A firm's contribution to GDP is roughly the sum of the wage bill and the money earned by capital (debt (interest) and equity (economic and not accounting profits)). That is, profits + interest payments + wages (look elsewhere for a more precise definition). Your example doesn't really have enough to go on to ...


4

Yes this can be considered flaw of GDP since GDP’s intended purpose is to measure the value of output produced by a nation. In fact in his report to U.S. Congress Kuznets (who is the person who developed the modern concept of GDP) mentions in a preface that national product (GDP) in his view should encompass all production at its hypothetical market value (...


3

Actually you could use taxes because GDP formula using income approach can be also expressed as value added at basic prices + taxes less subsidies. However, you can’t do it at the same time when using the approach in your question as you would be double counting. Using: $$GDP= w+i + r+ \pi + o$$ Where $w$ are wages $i$ interest income $r$ return on ...


3

Using the income approach, GDP is the sum of compensation of employees, gross operating surplus, gross mixed income, and taxes less subsidies on production and imports. Gross operating surplus includes not only corporate profits but also increases in inventory valuation. In the above example, using the income approach, the 15 sold cars will reflect under ...


3

It helps to link to articles that you're (probably) talking about: It’s hard to put a number on it. For one thing there’s no agreed definition of a world recession. According to a rule sometimes used by the IMF, a world recession is when the global growth rate is less than 2.5 percent. Global growth doesn’t turn negative often. It happened in the global ...


3

The multiplier comes from the solution to the goods market equilibrium. In economics everything is endogenous. Increase in income increases consumption that increases demand, demand increases production and production increases income. However, as an echo in a cave the initial increase in income gets 'weaker' as it cycles through the economy and the result 1/...


3

The main four sources of EU revenue are: Custom duties and levies - EU calls this its 'Traditional own resources'. These are however not collected directly but member states collect it on the EU's behalf and are allowed to retain (currently) $20\%$ cut from these. These duties are ultimately, at least partially, payed by the EU citizens either directly or ...


3

What you are seeing in the data provided in the google search is an annual estimate of GDP. In the FRED data download is GDP reported on a quarterly basis. Does last quarter value represents the GDP of the year? I thought we generally add all 4 quarters to get the annual number in finance? Add up the all the quarters nominal estimates and divide the ...


3

The data presented in the BEA website are percent change at annual rates (https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=2#reqid=19&step=2&isuri=1&1921=survey ) This is different to the regular growth rate formula that we all know (and what was done in FRED). Here the BEA talks about what that is and why to calculate percentage ...


3

A fisherman usually works 50 hours and catches 50 kg of fish every week. So let's say that his potential (or "natural") output is 50 kg of fish. Now suppose his boss orders him to work 80 hours per week and catch 80 kg of fish. This 80 kg of fish is his real output and exceeds his potential output of 50 kg. This is not necessarily a good thing and ...


3

The “shopping baskets” of items should be representative of consumer spending patterns. The general principle is to apply a fixed set of weights to price changes for each of the items such that their influence on the overall index reflects their importance in the typical household budget. In 2015, housing on average accounted for about 22 percent of ...


3

tl;dr: No, repaying national debt does not assume population increase although depending on the parameters of economy population increase can sometimes help with repaying the debt and also help with reducing the ratio of debt to GDP, but it is neither required nor assumed. Moreover, depending on parameters population growth can even be a hindrance as well. ...


2

Just to add some more besides the answers above: Short answer: by influencing interest rate. Explanation: In the post Keynesian literature what has come to be appreciated a lot is that government purchases, backed by increased government debt, increases interest rate. Why? Well, that's in itself an interesting explanation and perhaps should be a separate ...


2

In your comment you say you want the answer in context of the classic textbook model for goods market/output equilibrium. Following the Blanchard macroeconomics textbook lets consider closed economy so the output will be given by: $$Y=C+I+G$$ where $Y$ is output/income (they must be always equal), $C$ consumption, $I$ investment and $G$ gov. spending. ...


2

Depends on the type of tax, and on whether you assume the government gives the money to people back or just keeps them, but generally no. The exception would be any non-distortionary tax (lump-sum tax, Pigouvian tax etc). But if it is tax that is applied to all consumption then it will create distortions. This is because while you can tax consumption of ...


2

Yes but note economic development is more broad than just GDP. GDP measures economic output of a country and higher GDP correlates with higher development and it can be also used as a measure of economic development but more narrowly GDP is just a measure of output. This is correct, GDP can’t measure things like home production. It’s a disadvantage of GDP ...


2

Smith pointed out that as wealth was growing in any nation, the rate of profit would tend to fall and investment opportunities would diminish. Source The first half of the sentence makes it clear that this is not about steady state economies, as wealth is still growing. my question can be rephrased in a simpler way: If the economy was/became a ...


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