Please answer the following questions. Submit as a Microsoft WordÂ® document to the Dropboxwhen completed.Why does inflation make nominal GDP a poor measure of the increase in total production?Nominal GDP is âthe value of final goods and services evaluated at current-year pricesâ and isâcalculated by summing the current values of final goods and servicesâ, whereas âreal GDP iscalculated by designating a particular year as the base year and then using the prices of goodsand services in the base year to calculate the value of goods and services in all other years(Hubbard & OâBrien, 2009). Nominal GDP is GDP without adjustments of inflation which makes itseem like there is growth even when there is no growth. During inflation it is difficult to estimatehow much increase in nominal GDP has been due to increase in total production and how muchincrease has been due to inflation.Which component of GDP will be affected by each of the following transactions involvingFlyCheap Airlines? If you do not believe any component will be affected, briefly explain why.GDP = C+I+G+(X-M)C = Consumption expenditureI = Investment expenditureG = Government expenditureX = ExportM = Importi. You purchase a ticket on a FlyCheap Airlines to visit your niece.This would be consumption expenditure and would affect GDP. (C)ii. FlyCheap Airlines purchases a new jetliner from Boeing.This would be investment expenditure and would affect GDP. (I)iii. FlyCheap Airlines purchases new seats to be installed on a jetliner it already owns.This would be investment expenditure and would affect GDP. (I)iv. FlyCheap Airlines purchases 200 million gallons of fuel.Expenditure of fuel is an intermediate payment and is not part of GDP.[MT445 | Managerial Economics]v. A French citizen purchases a ticket to fly on a FlyCheap flight from Paris to New York.This would be part of Export and will not affect GDP. (E)vi. The city of Nashville agrees to spend funds to extend one of the runways so thatFlyCheap will be able to land larger jets.This would be a government expenditure and would be included in GDP. (G)Use the table to answer the following questions.YearReal GDP (Billions of 2000 Dollars)1993$7,11319947,10119957,33719967,53319977,836i. Calculate the growth rate of real GDP for each year from 1994 to 1997.1994 is (12)/7113= (.0017)x100= (.17)%1995 is 236/7101=.03×100= 3.32%1996 is 196/7337=.026×100= 2.67%1997 is 303/7533=.04×100= 4.02%ii. Calculate the average annual growth rate of real GDP for the period from 1994 to1997.Average growth rate of real GDP is (.17) + 3.32 +2.67 +4.02 = 2.46%iii. How does the average annual growth rate you calculated in (ii) above compare tothe average growth rate the U.S. normally expects?The average annual growth rate of 2.46% that I calculated above is much lower than whatis expected normally in the U.S.In an open economy, trade is allowed between countries. Assume a consumer purchases$1,000 worth of furniture manufactured in China. Answer the following:[MT445 | Managerial Economics]a. Which component(s) of GDP are impacted by this purchase?GDP = C+I+G+X+MC = Consumption expenditureI = Investment expenditureG = Government expenditureX = ExportM = ImportThis would impact consumption expenditures from and net exports.b. Does GDP increase, decrease or stay the same? Briefly explain why.c. Does your answer change if the company in China is a U.S.-owned company? Why orwhy not?
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