ASSIGNMENT 1: The class has been divided into three groups of 4 members and one group

of 3 members. The groups have been one question each out of the four questions below. Each
group should provide solutions to its assigned question and make presentation to the whole
class during the lecture hours on Monday, June 15, 2015.

Question 2
a) The gross domestic product (GDP) is supposed to measure the total value of final goods
and services newly produced in a country over a period of time (usually one year).
i.
Explain what is meant by the following key terms in the definition of the gross
domestic product: Final goods and services; over a period of time; newly
ii.
iii.

produced; in a country.
Distinguish between a final good and an intermediate good.
What is the reason for limiting the measurement of GDP to include only final

goods and services?

b) There are two important dimensions in the growth of human impacts on the environment:
Population Growth Dimension: Since each individual human being has certain basic
needs for food, water, and living space, it means that a large population will generally
have a higher resource requirement and higher environmental impact.
Economic Growth Dimension: As per capita income rises, each individual tends to
consume more, increasing resource demand and waste production.
i.

Explain why the private business sector should be concerned about each of the

ii.

two dimensions in the growth of human impacts on the environment.

What challenge does each of this growth dimensions present to governments and
managers of the economy?

a) GDP

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i.

Meaning of the terms in GDP definition is as follows:

Solution

v Final goods and services

GDP includes both goods (Food, clothing) and services (pedicure,
housecleaning) which are tangible and intangible, respectively. But only
expenditures on final productswhat consumers, businesses, and government
units buy for their own use belong in GDP.
For instance, when we buy Kenkey from Kenkey Factory, the Kenkey is a
final good. The corn is an intermediate good. GDP includes only the value of
the Kenkey, the final goods, not the corn.
This is done because the value of intermediate goods is already included in the
prices of the final goods. Adding the market value of the corn to the market
value of the Kenkey would be double counting. In pricing the Kenkey, all
input prices were factored, which includes the corn price.
An important exception to this principle arises when an intermediate good is
produced and, rather than being used, is added to a firms inventory of goods
for use or sale at a later date. In this case, the intermediate good is taken to be
final for the moment, and its value as inventory investment is included as
part of GDP. Thus, additions to inventory add to GDP, and when the goods in
inventory are later used or sold, the reductions in inventory subtract from
GDP.

v Over a period of time

GDP is a flow variable, which is a variable measured over a specific period of
time. Flow variables represent the change in the level of a variable over a
period of time. GDP measures the economys flow of income and expenditure
during that interval. It provides a measure of aggregate output and its
comparison over time enables us to calculate the rate of growth (usually
calculated both at current and constant prices).

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v Newly produced
GDP measures the value of currently produced goods and services. Thus, the
sale of used goods is not included as part of GDP.

v In a country
The word 'domestic' (in 'gross domestic product') means that we're only
counting things that are produced within our domestic borders, whether they
are produced by citizens or not. Nothing that is produced outside of our
domestic borders gets counted in the GDP. Counts only the goods and services
produced within the country's borders during the year, whether by citizens or
foreigners. Excludes transfer payments since they do not represent current
production.
Mathematically:
GDP = C + G + I + NX
where:
"C" - all private consumption, or consumer spending, in a nation's economy
"G" - sum of government spending
"I" - sum of all the country's businesses spending on capital
"NX" - nation's total net exports, calculated as total exports minus total
imports. (NX = Exports - Imports)

ii.

Distinguish between a final good and an intermediate good.

An intermediate good is a good not immediately consumed but used to
produce a final good which is then consumed. It requires further processing
before it can be consumed whereas final goods require no further processing
before consumption.
Many goods are produced in stages: raw materials are processed into
intermediate goods by one firm and then sold to another firm for final
processing.

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iii.

What is the reason for limiting the measurement of GDP to include

only final goods and services?

The reason is to avoid multiple counting when compiling GDP since only
expenditures on final products belong in GDP.
This is clearly illustrated by the journey corn makes from the farm to the
market.
The farmer gets about GHc5 for the corn that goes into about 6-10 balls of
Kenkey. This corn is ground into flour at a mill and is now worth, say, GHc8.
One ball of Kenkey is worth GHc1 and this amount, spent on the final good
paid by the consumer is what goes into GDP.

b)

Population Growth Dimension and Economic Growth Dimension

i. Explain why the private business sector should be concerned about each
of the two dimensions in the growth of human impacts on the environment.
v Increased demand - infrastructure, human resource, expenditure
v Increased demand brings about increased impact on the environment
waste generation, pollution,
v Increased environmental taxes
v In the micro environment competition increases as more other firms
takes interest in sharing in profits accruing out of the increased demand
v Economic growth dimension in the growth of human impacts on the
environment
-

Increased per capita may likely lead to inflation therefore

private firms has to strategize to serve or target a profitable
segment to remain

It becomes expensive to employ since the price of labor may be

high. So private firms would be keen on retaining their existing
staff.

v -Awareness of consumers of their rights and need for business to meet

certain level of quality standards
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ii. What challenge does each of this growth dimensions present to

governments and managers of the economy?
According to Malthusian theory, a high population growth is associated with
food problem, i.e., malnutrition and hunger but Bloom and freeman (1998)
differ with the theory noting that food problem is more of a problem of
poverty and inadequate income than a matter of high population growth. The
population and food problem
can be solved when income is enough to buy adequate food as prices provide
adequate incentives to produce. On the other hand, developing economies
would have to export more, receive foreign aid or borrow overseas to meet
their increased demand for food by increased imports. A high rate of
population growth not only has an adverse impact on improvement in food
supplies, but also intensifies the constraints on development of savings,
foreign exchange, and human resources.

Rapid population growth tends to depress savings per capita and retards
growth of physical capital per worker. The need for social infrastructure is also
broadened and public expenditures must be absorbed in providing the need for
a larger population rather than in providing directly productive assets.
Population pressure is likely to intensify the foreign exchange constraints by
placing more pressure on the balance of payment. The need to import food
will require the development of new industries for export expansion and/or
import substitution. The rapid increase in school age population and the
expanding number of labor force entrants puts ever greater pressure on
educational and training facilities and retards improvement in the quality of
education, which is a problem in developing economies. Also, too dense a
population aggravates the problem of improving the health of the population
and intensifies pressure on employment and the amount of investment
available per labor market entrant. More people may mean a country can
produce and consume more goods and services, leading to economic growth.
But this can only occur when employment opportunities grow at least as fast
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as the labor force and when people have access to the necessary education and
training.

A larger population may help overcome possibly diminishing returns to this

generations human capital in the production of the next generations human
capital because greater population growth induces more specialization and a
larger market that raise returns to human capital and knowledge. If human
capital per capita were sufficiently large, the economy would move to steady
state growth, whereby in the steady-state growth path, consumption per capita
would increase at a slower rate than human capital if the population is growing
and if the production of consumer goods has diminishing returns to
population. However, consumption per capita can still be increasing, despite
these diminishing returns, if the positive impact of the growth in human
capital on productivity in the consumption sector more than offsets the
negative impact of population growth. Thus, zero population growth is not
necessary for sustainable growth in per capita consumption, even with
diminishing returns to population in the production of consumer goods (Gerald
and Meier, 1995).

Economists advocating the positive side to population growth, say that the
population growth creates problems in the short run that include poverty,
famine and unemployment. Yet, they also state that in the long run, it leads to
new developments through advancement in technology that leave countries
better off than if the problems never occurred. On the positive side, there is a
chain reaction of events caused by population growth. According to the neoclassical growth model, population is beneficial to an economy due to the fact
that population growth is correlated to technological advancement. Rising
population promotes the need for some sort of technological change in order to
meet the rising demands for certain goods and services. With the increased
populace, economies are blessed with a large labor force, making it cheaper as
well, due to its immense availability. An increase in labor availability and a
low cost for labor results in a huge rise in employment as businesses are more
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inclined to the cheap labor. Low labor costs results in a shift of money usage
from wages into advancement through technology
(Coale and Hoover, 1958). According to Friedberg and Hunt (1995) population
growth and urbanization go together, and economic development is closely
correlated with urbanization. Rich countries are urban countries.
Population growth increases density and, together with rural-urban migration,
creates higher urban agglomeration. And this is critical for achieving sustained
growth because large urban centers allow for innovation and increase
economies of scale. Companies can produce goods in larger numbers and
more cheaply, serving a larger number of low-income customers. Many
countries have companies which have been benefitting from increasing
population growth and density in targeting the large numbers of lower and
lower-middle income. Their business model is viable because they can serve a
multi-million customer base.

Impact of Economic growth on governments and managers of economy

1. Governments no longer have access to low Interest loans
2. Increased demand for higher Wages
3. Increased Demand for utilities such as electricity, water infrastructure like
housing, roads, etc.
4. Increase demand for More luxury products putting pressure on governments
look for' Foreign exchange to buy or import these Items
5. Increase use of foreign products leads to more Waste that government has to
find ways of dealing with
5. Impact on the environment

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