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Exercise on GDP measurement and budget statement analysis

Exercise 1: Opportunity Costs

The assignment will mainly be about a topic only covered very briefly in class: GDP measurement. To understand and do the assignment, please look at the lecture slides now posted on Blackboard for week
1. Please also read Administrative particulars
Deadline: 11:59pm on Thursday, November 18th, 2021. Note that the assignments delivered past deadline will automatically get score 0.

You should deliver your assignment via Blackboard.
This is an individual take-home assignment. You can discuss in groups, but the assignment must be your own work.
Please use the font size at least 11. As of the rest – style, number of pages, etc. – it is completely up to you. I do not evaluate your assignment based on the literary criteria or number of pages.
Please deliver only one file. Preferably, send a pdf file.
List all the sources you have used while writing your assignment.
Make sure your answers are clear, complete, and correct. Be as specific as possible. Provide explanations and arguments. Do not leave anything for a reader’s interpretation or guessing.

Exercise 1
Opportunity costs are the benefits that one could have bought with the resources spent on something, so the ‘best’ thing one did not buy. Whenever anyone claims that a person or a government should spend money on something, an economist always thinks of what else could have been bought with the money and thus the opportunity costs. If the opportunity cost is higher than the value of what is bought with the resources, an economist advocates to in stead buy the thing with higher value.

In this exercise, I would like you to write a story. It could be from your own experience in which you describe a real-life situation that you witnessed where money was spent on one thing whilst something else was a much better purchase. This could be an unwise purchase you made! You can, alternatively, pick  an example from your own knowledge of big expenditures in an organization where a lot of money was spent on one thing whilst something else was a much better purchase. Describe why the money was spent as it was and what prevented the better purchase from being recognized and taken. Argue why the other choice would have been of higher overall value (so you need to argue why the value of what could have been chosen was higher than the value of what was chosen).

As with all the concepts we discuss, I would like you to be able to recognize in the real world the phenomena that we discuss in class. This leads to a more systematic way of perceiving the reality.
The goal of this exercise is not to explain what an opportunity cost is; it already is explained above. Nor is the goal to google for examples of bad purchases. Rather, the goal is for you to reflect on your own experiences and memories to find examples from your own life of the concepts discussed in class. I am hoping to read some interesting stories.

Exercise 2: Finding Data on GDP and Its Components

Exercise 2 
Please read the lecture slides on GDP measurement in Blackboard.
By definition, GDP = C + G + I + X – M, where C is personal consumption, G government expenditures, I investments, X exports, and M imports. In the table below, you can find an example of USA GDP in 2018
divided by its components.

What we see is that – no matter whether nominal or real GDP – it is Consumption that is the biggest % of
GDP. It tells an interesting story about the American economy and society.

Definitions. Nominal GDP 2018: computed for current prices (2018). Real GDP 2018:
computed for prices from 2012 (i.e., 2012 is the base year).
Source. “Gross Domestic Product, Fourth Quarter and Annual 2018 (Initial Estimate)” by the U.S. Bureau of Economic Analysis. Downloaded from:

3. “Gross Domestic Product: Level and Change From Preceding Period.”
Your task is to find data on GDP and its components for 4 (four) distinct countries; one of them must be Saudi Arabia, none of them is to be USA. The year must be no earlier than 2019. You do not need to provide times series; a snapshot from one year is enough.

Essentially, for each country, you should replicate the above table. Try to find the most recent data. You should find data for nominal and real GDP. Compute each component of GDP as % of GDP. As in the table above, include definitions, sources, and methodology.

Exercise 3 
Please read the lecture slides on GDP measurement in Blackboard. Here are two tables from the 2020 budget statement of the government of Saudi Arabia. First, we have information about budget deficit: in the past three years, revenues are smaller than expenditures. (This will be the main focus of this exercise.) Second, we have data about how the budget is spent.

Your first task is to find the budget statement of 2021 and compare it to the Projections of the previous year in the tables below, thus answering:

1. [10 points] Compare the Total revenues for 2020 in the budget statement for 2020 (hence below) with the ‘Estimates’ for 2020 in the budget statement in 2021. Has revenue been higher or lower than thought the previous year?

2. [10 points] Do the same with Expenditures, Budget Deficit, Debt, and Government Reserves. Are the estimates from the budget of 2021 for the outcomes in 2020 been higher or lower than the stated amount on the budget for 2020 (below)?

The next task [20 points] is to compare the expenditures at the sectoral levels between 2019 (estimates) and 2020 (estimates). Which expenditures went up and which went down?  

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