Economics Analysis

Part I

John Maynard Keynes

Keynes developed the Keynesian theory of economics that serves as an influential theory in the economic policy (Dillard, 2005).

Adam Smith

Adam smith developed the concept of capitalism in the theories of economics.

David Ricardo

David Ricardo presented the classical economists view in the theories of economics. He developed the law of comparative advantage that supports capitalism and free trade (Boyes & Melvin, 2010).

Part II

GDP of Country A

Composition of GDP by Percentage

In order to find the composition of the factors that make up the GDP of Country A, first we have to analyze the GDP in terms of unit of the economic components of the country. GDP (Gross Domestic Product) of a country is the market value of all the finished services and goods that are produced inside a country during a particular and specific time period. The basic components that make up the GDP of a country include consumer spending, investments made by the industries, excess of exports compared to the imports and government expenditure. The formula derived from the definition of the components of GDP is written as,

Y = C + I + E + G

Where,

Y = Gross Domestic Product

C = Consumption or consumer spending

I = Investments made by the industries

E = Excess of exports compared to the imports (EX - IM)

G = Government Expenditure and Spending

To find out the GDP in terms of units for Country A, we will use the data provided in the case.

Y = C + I + (X - M) + G

Y = 90, 000 + 10, 000 + (65, 000 - 50, 000) + 25, 000

Y = 140, 000

To calculate the percentage composition of GDP, we will divide each component with the total GDP in terms of units. The percentage component of GDP can be written as follows.

Y = C + I + E + G

100 % = 64 % + 7 % + 11 % + 18 %

Where,

GDP (Y) = 100 %

Consumer Spending (C ) = 64 %

Investment (I) = 7 %

Exports and Imports (E) = 11 %

Government Spending (G) = 18 %

GDP Per Capita

The amount of goods and services that are produced inside a country by the population of the country is the GDP of that country. The average amount of capital contributed by an individual of a country is termed as the GDP per capita of the country. In order to determine the per capita contribution by the people of the country into the GDP of Country A, the GDP is divided by the population of Country A.

Here we have,

GDP = 140, 000

Population = 500, 000

GDP Per Capita = GDP / Population

GDP Per Capita = 140, 000 / 500, 000

GDP Per Capita = 0. 28

Increase in Government Purchases and the GDP

In Short Run

An increase in the government spending in the short run will affect the aggregate demand and level of real GDP. An increase in the real GDP will lead to an increase in the income levels of people of the ...