1. The economy’s income must equal its expenditure because every transaction has two parties; a buyer and a seller. Every dollar that is used by a buyer it is a dollar of income for a seller.
8. It is desirable for a country to have a large GDP because with a larger GDP comes a better quality of life. Also, better housing, healthcare, longer life expectancy, better education and higher literacy. An example that would raise the GDP but be undesirable would be if everyone started working 7 days a week. More goods and services would be produced but nobody would have leisure time to relax and spend that money that they earn. Also, this would affect the overall health of people.
8. I think that a 10% percent increase in the price of chicken would have a greater effect on the consumer price index. This is because the price of chicken is more important to the average consumer verses the price of caviar.
Chapters 25 & 26
3. In what way is a college degree a form of capital? Earning a college degree is part of human capital. Human capital is like physical capital, it raises a nation’s ability to produce goods and services. Students can be looked at as workers who have the important job of productivity the human capital that will be used in future production.
5. Does a higher rate of saving lead to a higher growth temporally or indefinitely? Temporally. As the higher saving rate allows more capital to be accumulated, the