Micro Economics

Question 1

(i)Real GDP in 2006

= Consumption+ Investment+ Government Purchases +Net Exports

=Private Final Consumption Expenditure+ (Gross Fixed Capital Formation- Changes in Inventories) +Government Final Consumption Expenditure+ (Exports of Goods and Services- Imports of Goods and services)

=RM (in mil) [230,641+ (107,116- 1,108) + 61,258+ (592,898-516,412)]

=RM 474,393 million

Real GDP in 2007

=Private Final Consumption Expenditure+ (Gross Fixed Capital Formation- Changes in Inventories) +Government Final Consumption Expenditure+ (Exports of Goods and Services- Imports of Goods and services)

= RM (in mil) [257,625+ (118,075-13,626) + 65,182+ (614,914-537,761)

=RM 504,409 million

(ii) Net exports include goods and services produced abroad because these goods and services are included in consumption, investment, and government purchases. Purchase of the earthmoving equipment from Japan reduces net exports and it also raises investment, it does not affect the GDP. Thus, this purchase does not increase Malaysian GDP.

Question 2

Productivity refers to the quantity of goods and services produced from each unit of labor input. A country’s standard of living depends largely by the productivity of its workers. However, productivity is determined by the factors of production. Factors of production include physical capital per worker, human capital per worker, natural resources per worker and technological knowledge. Physical is the stock of equipment and structures that are used to produce goods and services such as office buildings. Human capital consists of the knowledge and skills that workers acquire through education, training and experience. Natural resources are the inputs into production that are provided by nature, such as land. Technological knowledge is the understanding of the best ways to produce goods and services.

Furthermore, productivity is measured by comparing the amount of goods and services produced with the inputs which were used in production. There are several ways to measure productivity. The several ways are measure the output per worker or hour of labor, output per hour, day or week, output per machine and unit costs which is the total costs divided by total output.

Next, productivity is so important because it determining living standards for all nations in the world. Recall that gross domestic product (GDP) is measure of income and expenditures of an economy. For the economy as a whole, an economy’s income must be equal