Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:**Part A:**
Why must double counting be avoided when measuring GDP? Provide an elaborate answer with at least one example.
**Part B:**
**Aggregate Demand (AD) Curve** shows the relationship between the economy's price level and real GDP demanded. In other words, real GDP demanded by different groups of buyers, i.e., Consumers (C), Businesses (I), Government (G), and Net Amount by Foreigners (Export - Import), at different price levels give us points on a graph, which are connected to form a curve called AD curve. Review the textbook chapter, and conduct internet research to discuss determinants of AD or factors that shift AD curve.
**Part C:**
Following graph shows business cycle fluctuation in a hypothetical economy. “Y” denotes year, and “Q” denotes quarter. What do points A, B, C, and D denote? Write at least a sentence each about what these points denote. Also, explain what represent the curve segments: A to B, B to C, and C to D. Lastly, because economic activity fluctuates, how is long-term growth possible?
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### Graph Explanation:
**Graph Title:** Real GDP (billion $)
- **Vertical Axis (Y-axis):** Represents Real GDP in billion dollars, ranging from 0 to 50.
- **Horizontal Axis (X-axis):** Represents different quarters across different years (Y1Q1, Y1Q2, Y1Q3, Y2Q1, Y2Q2, Y2Q3).
**Data Points:**
- **Point A:** Positioned at Y1Q1, low GDP level.
- **Point B:** Positioned at Y1Q3, showing an increase from A.
- **Point C:** Positioned at Y2Q1, showing a decrease from B.
- **Point D:** Positioned at Y2Q3, showing an increase from C, reaching the highest GDP level depicted.
**Segments:**
- **A to B:** Represents economic growth from Y1Q1 to Y1Q3.
- **B to C:** Represents an economic decline from Y1Q3 to Y2Q1.
- **C to D:** Represents a recovery and growth phase from Y2Q1 to Y2Q3.
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