Tutorial 1(SOLUTION) GROSS DOMESTIC PRODUCT (GDP)

ECON7001Tutorial 1Gross Domestic ProductChapter 4Question 1“Is China about to overtake US as the worlds largest economy?” BBC 30 April 2014 http:www.bbc.comnewsbusiness27216705(a) By what economic measure is this claim being made?(b) What problems arise when making international comparisons of economic activity?(c) Does this mean China is wealthier than the United States?Solutions(a) Comment on the “size” of an economy is normally a reference to its gross domesticproduct (GDP). Note this is total economic value added, NOT per capita. Note that itignores informal economy. Also note that construction of GDP measure (what is inand out, eg. illicit drugs and prostitution) is different across countries. And thatgoods are heterogenous, so different production and consumption profiles lead todifferent totals due to aggregation assumptions (industry deflators etc)