Principles of Economics : Countries and Systems
1) (200 words max., 20 points) Imagine a simple economy that consists only of 3 sectors: iron sector, steel sector and automobile sector. Iron is produced with no intermediate input. The value of production is £1000 and this is sold entirely to the steel sector. Apart from iron, the steel sector imports carbon for £500 and produces steel with a value of £2000. This is bought entirely by the automobile sector which produces cars that are worth £3000 (for simplicity, assume cars do not need any other intermediate input). Half of those cars are sold to households and the other half to the government. Based on this, answer the following questions:
A. What is the value of the GDP of this economy?
B. Explain the equivalence between the value-added approach and the expenditure approach in this example.
2) (500 words max, 30 points) Discuss the following statement: “Rising numbers in the employment rate is always good news for the economy”
3) (800 words max, 50 points) Which alternative measures does the government have to boost the economy? Which one do you believe is the more direct way to do it?
