Why A Study Of Indo Bhutan Relations History Essay

Why A Study Of Indo Bhutan Relations History Essay The political and economic scenario of the world has changed significantly since the end of the Cold War. The simultaneous rise of India and China while a financial gloom stares at the West, is a development of great significance today. In this context, the Sino-Indian balance of power situation has put the countries of the Indian sub-continent into world focus. Moreover, the traditional concept of national security is being broadened gradually to include human security concerns related to water, food and energy security; climate change, pandemics and natural disasters; migration and preservation of identity and culture. Because of the unprecedented pace of globalisation driven by frontier technologies, borders are gradually losing their relevance. These massive changes, which are likely to accelerate in the next 20 years, have also affected India and its neighbourhood. South Asia is witnessing the competitive rise of India China which has created a global influx of resources and a n ew security architecture is being built around it or at least the existing one is being strengthened. That is why the Indian Ocean Rimland has become the big game corridor. Part of this Rimland are big and small nations all competing in the same space. The diplomatic equation of India with these nations is undergoing metamorphosis, albeit there is continuity in change. In this context, the Indo-Bhutan relationship has become not just more dynamic but also complex. The Bhutanese social and political milieu has been fast changing ever since democracy took feet in the Bhutanese soil. With growing aspirations, Bhutan has realigned herself with real politics of the world. It has begun to come out of its shell and explore better avenues of international co-operation, even thawing to its Northern neighbour, China. Added to this is the unfolding reality of social change in the Bhutanese society and the grave threat of climate change related disasters, which the glacial country is literally living under. Although Indo-Bhutan relationship has withstood the tests of time so far, it would be very ignorant of us if India does not sit up and take notice of these chan ges so that we may be prepared to recalibrate our policies to prevent them from becoming anachronistic. 1.2 Aim Given the above context, this thesis is aimed to make an objective study of the security situation, the social-political and economic developments and the climatic changes that define the Bhutan of today. The study aims to highlight and analyse those developments which can be of particular relevance to Indian foreign policy making in the next decade or two. It is aimed to understand the anxieties of our Himalayan neighbour in present times so that we may be able to posture ourselves better to meet the challenges that may be posed to our national interests due to these changes, and also to take advantage of any new opportunities that may arise with them. Thus, recommendations and suggestions are also put forth for making Indian diplomacy more successful in this region in the coming times. 1.3 Scope The scope of this thesis has been restricted to analysing Indo-Bhutan relations beginning from the end of British Rule and signing of the Friendship Treaty in 1949, although, historical references have been made wherever deemed necessary. However, the main focus of the study is on the contemporary Bhutan and the changes seen in the past 10 years, which have led to the ongoing transformation of Bhutan. It aims to highlight the contemporary developments which have caused or may cause, a shift in the Bhutanese policy imperatives, thus requiring a similar reconfiguration from the Indian side. 1.4 Plan of Presentation The thesis is divided into five chapters. The first chapter deals with a general introduction of Bhutan as a unique country and the background of Indo-Bhutan relations in various sectors of co-operation. The subsequent three chapters will deal with specific issues which are considered important for Indian foreign policy making. The second chapter will introduce the security issues involved considering the strategic location of Bhutan between two big powers, India and China. The next chapter touches upon the internal developments in Bhutan- social, political and economic- which can have implications for Indian foreign policy imperatives. The one after that deals specifically with the issue of climate change and the implications it may have on the power and water co-operation between India and Bhutan and also on the living conditions of people in the lower riparian Himalayan states of India. The last chapter aims to conclude and summarise the above implications on Indian foreign policy and how India should calibrate its stance taking in account the said developments. CHAPTER 2: Indo-Bhutan Relations 2.1 Why a study of Indo-Bhutan Relations? The pace of change in the Asian region will only intensify in the coming years. What does this change mean for Indias neighbourhood policy? While Indias neighbourhood will throw up several new avenues for co-operation among countries of the region yet fresh security challenges will also arise. Dominated by traditional security concerns for the last six decades, Indias policy towards its neighbourhood will require a makeover in the light of the great political, economic and social changes that are taking place. Today the concept of security encompasses several humanitarian cross-border issues like migrations, water sharing, transportation, trade, energy and food security etc. Hence, non-military concerns will need to be incorporated within a broader understanding of national security. This will be a major challenge for Indias foreign and security policies in the coming decades. Bhutan is turning over a new leaf in its history. It is transiting from a monarchical system to democracy. In this context, India has to take into stride the growing presence of China in the region and the fact that a country like Bhutan cannot avoid a political thaw towards a big power without making the animosity evident. It may have to open doors to the Chinese for deepening its economic ties which will help in improving the living standards of its peoples. Moreover, the political tone of the emerging parties is changing with the rise of a strong pro-China and anti-India lobby in Bhutan. India cannot afford to do business as usual with Bhutan as it will also hurt its own interests. In such a scenario, India should be mindful of the changing political discourse in Bhutan as democracy takes roots in Bhutan. Along with this, we have to co-operate to manage the threats of Climate Change which will cause damage beyond boundaries. That is why it is imperative that we understand our smal l neighbour and not fall in the trap of taking things for granted. In this chapter an attempt is made to build that background perspective which will give force to the arguments presented later and also impart a direction and context to the study. DRUKYUL: Land of the Thunder Dragon 2.2 Political History The political system of Bhutan has evolved over time together with its tradition and culture. In Sanskrit literature it finds mention as Bhotaant. Bhot or Bhotiya are the tribes from Tibet and ant means the end, meaning the land where Tibet ends. It is said that it was ruled by a Hindu king of Indo-Mongoloid origin. From 8th century onwards the Tibetan invaders began to attack the kingdom and subsequently drove out the original rulers and began to call themselves the Druk people. Later, during the 18th century, Bhutan had their first brush with the outside world through the interventions of British East India Co. Bhutan and Assam had been rivals for ages and even after the British occupation of Assam, Bhutan continued to raid it. First the British tried to engage Bhutanese king Deb Raja through diplomatic missions but the ruler did not give up the raids. This led to an expedition by the Company in Bhutan whereby Deb Raja was subjugated and The Ten Articles Treaty of Rawa Pani in 1865 was signed. After Deb Raja, Ugyen Wangchuk came to power. He changed the course of Bhutans history forever. He became a close ally of the British during the Anglo-Tibet war and this alliance also changed the course of Indo-Bhutan relations in future. It finally led to the signing of the Treaty of Punakha in 1910 which was a prelude to the Treaty of Friendship signed in 1949 between independent India and Bhutan. 2.2.1 Transition to Democracy: The Wangchuk dynasty continued to rule Bhutan. In 1952 King Jigme Dorji Wangchuk came to power and he changed the countrys course forever. Having been educated in India and abroad, he understood the importance of economic development and democratic values. If one looks at the class structure of Bhutan, the picture regarding the conditions that might trigger a transition appear almost as non-existent as did the socio-economic factors. Not only is the majority of the population employed in agriculture, there also exists almost no noteworthy middle class that could facilitate change in line with the arguments made by modern sociologists. Therefore, modernization in Bhutan took a completely different shape from that in most countries. Instead of massive social transformation, it appears that development came in the form of change in continuity. The first structure of Bhutanese culture that promotes this change in continuity is religion. The specific traits that come with Buddhism are probably as conducive to democracy as western culture is thought to be. Like Buddhism, modern democracy is based on the principle that all human beings are essentially equal, and that each of us has an equal right to life, liberty, and happiness. Thus, not onl y are Buddhism and democracy compatible, they are rooted in a common understanding of the equality and potential of every individual. (His Holiness the Dalai Lama 1999: 3f) Democracy also requires a system whereby the interests of the individual are balanced with the wider well-being of the community at large. In Buddhism, this dualism between individual and group rights is also well embodied. Second is the uniquely significant role of agency in Bhutans transition to democracy. The initiative for democratization emanated solely from the fourth Druk Gyalpo, although some pro-democracy pressure groups did start agitating during the 1990s. Also, no external pressure was put on Bhutan to liberalize, neither from its direct neighbours, nor from its donors. Interestingly, the King had initiated the beginning of the transition, not by liberalization but by strengthening the executive and legislative, thus devolving his own powers and strengthening state institutions. It appears that the whole process had been long planned and envisioned by the King, as for more than 20 years before the introduction of democracy, some form of consensual, participatory grass-roots democracy had been nurtured, which in turn made it possible to publicly discuss and deliberate about the draft constitution. This resulted in a carefully planned and executed policy of change in continuity, that did not o ppress the people, provided development without uprooting them, and safeguarded the norms, values and institutions which they held dear. This shows the significant role that leadership played in the countrys evolution. That is why the fourth King is considered father of Modern Bhutan. The constitution was launched in 2008 and with it a parliamentary form of democracy introduced. The progression from Hereditary Monarchy to that of a Parliamentary Democracy has been gradual from the institution of National Assembly in 1953 to all the decentralization that followed suit. Thus, in 2008 Bhutan witnessed a major shift in its political system with the first elections launched country wide. The Druk Phunsum Tshogpa was mandated by the people to head the new government with a major victory. Today with 45 elected members, Lyonchen Jigme Y Thinley steers the government with just two opposition members from the Peoples Democratic Party. 2.3 Bhutan: Economic environment* Bhutan is a Low Income Country coming under the South Asian Region as per the classification made by the World Bank on the basis of income and region for the year 2006. Bhutans GDP  [1]  per capita in 2009 was 1,805 US $, up from 762 US $ in 2000. However, this drastic change probably reflects more on the volatile increase of GDP due to hydro power construction projects than on the real and substantial increase in the peoples income. Its adult literacy rate is merely 59%, though there appears to be a sharp contrast between urban and rural. Though it is one of the smallest economies in the world, still its fast rising economic growth rate and its developmental efforts have drawn the attention of the world. It has strived hard to achieve the Millennium Development Goals. For instance, approximately 90% of the population is covered by basic health care, while 83.2% have access to safe drinking water. The Ngultrum is its currency whose value is pegged to the Indian Rupee. The Indian Rupee is also accepted as legal tender in the country. Its economy is largely dependent on agriculture, forestry, tourism and sale of hydro electric power to India. Ninety five percent of the population depends on agriculture and allied sectors. The country has large deposits of marble, dolomite, graphite, lead, copper, slate, coal, talc, gypsum and beryl. Major agricultural products  [2]  in the country are rice, corn, root crops, buckwheat, barley, oranges, cardamom and dairy products. Important industries in the country are HEP, food processing, cement, wood products and processed fruits. Its tourism industry brings large reserves of foreign exchange to its treasury. Manufacturing has been the weakest link to its industrial efficiency. 60% of its budget expenditure is being financed by the Ministry of External Affairs. Its major export destinations  [3]  are India, Hong Kong and Bangladesh with electricity, cardamom, spices, handicrafts and timber majorly constituting its export basket. Imports for fuels, grains and machinery are sourced from India, Japan and Sweden. Bhutan has high dependence on developmental aid like in all its major hydro electric projects it has joined hands with many countries like Austria, Netherlands, India etc. Graph 1: GDP growth rate trend Graph 2: GDP Growth sector-wise 2.3.1 Macroeconomic Performance in Recent Past The countrys economic growth rate in the 2011-12 was at 8.1 percent. Bhutan was ranked second in South Asia and 11th in the world by the real GDP growth rate for the year 2011. The list of the countries was prepared by the US Central Intelligence Agency. The growth was driven by the industry with hydropower constructions contributing 44.1 percent followed by the service sector at 37.4 percent. The primary sector including agriculture, livestock and forestry contributed 15.1 percent. On the surface, the macroeconomic environment of Bhutan can be described as quite sound in the conventional sense. It has a low budget deficit, a low and stable inflation, a highly open trade regime and a current account surplus (including grants from abroad) in its external transactions. Detailed scrutiny, however, reveals a number of weaknesses. Unlike many other developing countries, Bhutan did not have to undergo a formal structural adjustment programme because it never faced serious macroeconomic imb alances to warrant such a programme. Nonetheless, Bhutan has undertaken a wide range of liberalization programmes especially in the realm of financial policy and trade and industrial policy-that allow for a greater role of the market mechanism in resource allocation and encourages a shift of economic activities from the public to the private sector. 2.4 Bhutan: Social and cultural environment Bhutanese people can be generally categorized into three main ethnic groups- Tshanglas, Ngalops and Lhotshampas and about ten minority groups. Together the multiethnic Bhutanese population numbers slightly more than 7 lakh as per the 2011 census. Dzongkha is the official language of Bhutan and it is written in the Classical Ucan Tibetan script. The Bhutanese society is free of class or caste system and any inhibition that is detrimental for a society to progress. In general the Bhutanese have always been gender sensitive. Bhutan is a Buddhist country and people refer to it as the last stronghold of Mahayana Buddhism. Buddhism was first introduced by the Indian Tantric master Guru Padmasambhava in the 8th century and the original religion was Ponism, an animistic religion. One may still come across animistic traditions and beliefs being practised by the people. However, Buddhism has a strong impact on Bhutans national life and national affairs. There are many monasteries which are also centres of administration and lamas are exempt from paying taxes. While Bhutan is definitely one of the smallest countries in the world yet the cultural diversity and its richness are profound. As such strong emphasis is laid on the promotion and preservation of its rich cultural diversity. It is strongly believed that ensuring protection and preservation of its unique culture would assist in protecting the sovereignty of the nation. 2.5 Bhutan: Ecological environment One of the four pillars of Bhutans development philosophy of Gross National Happiness is the preservation of its environment. The recently adopted Constitution of Bhutan mandates to have minimum of 60% of the country under forest cover. Today, forests constitute 72% of the country. There are more than 3,281 plant and 770 bird species making Bhutan one of the top 10 bio-diversity hotspots in the world. Although Bhutans carbon footprint is low because its energy consumption is based less on fossil fuels and more on hydro power, yet it faces an imminent threat due to global climatic changes being a lower riparian state in the glacial valleys of some of the highest and largest Himalayan glaciers. According to a PTI Report published in the Times of India on Sep 28, 2012, a joint India-UK survey has revealed that Himalayan region will be the worst hit by climate change. According to another set of recent findings, published in three reports by the International Centre for Integrated Mountain Development, based in Kathmandu, Bhutans glaciers have shrunk by 22 per cent over the last 30 years. Not only does this threaten the viability of its power projects, but also its very survival. Hence, how Bhutan and the world cope with this challenge will have great implications for the whole densely populated region of South Asia. 2.6 INDO-BHUTAN RELATIONS: A ROCK THROUGH THE AGES Bhutan and India have shared a common cultural heritage in many ways and till 8th century Bhutan used to be a Hindu kingdom. Even Buddhism was introduced in Bhutan by an Indian, Guru Padmanasambhav. Cultural exchange and trade at the borders forged close ties among the people, especially in the North eastern region. Political contact was first established when King Ugyen Wangchuk became a close ally of the British during the Anglo-Tibet war and this alliance changed the course of Indo-Bhutan relations in future. It finally led to the signing of the Treaty of Punakha in 1910 which was a prelude to the Treaty of 1949 signed between independent India and Bhutan. This treaty was a landmark in the bilateral relationship of the two countries. For Bhutan, the treaty came as an assurance from the Indian side that its sovereignty as a small but independent country will not be challenged by the Big Power on its southern border. It was critical to her security and existence because at that time , the Big Power on its Northern border, Communist China, was carrying out threatening advances towards Ladakh, Tibet, Sikkim, Nepal and Bhutan, following the Palm Five Fingers theory of Mao. Under article 2 of the treaty, the Government of Bhutan had to undertake to be guided by the advice of Government of India in its external relations. Hence, Bhutan had to give up its right to have an independent Foreign Policy. For India, this treaty had obvious geo-strategic and security significance. In this regard, Lt Gen B.M.Kaul in his book The Untold Story (Bombay: 1967) quotes Nehru from a private conversation as: It was important from Indias point of view to strengthen Bhutans friendship in view of her key position at our border and we must do everything possible to help her. We must treat smaller countries like Bhutan as our equals, and never give them the impression that they are being civilised by us. Between 1949 and the present times, there have been distinct phases in the evolution of this relationship, while the treaty was still very much like a bedrock. These are marked by four distinct events- the suppression of Tibet by China in 1959, Indias defeat at the hands of the Chinese in 1962, the merger of Sikkim in 1974 and finally the establishment of Democracy in Bhutan in 2006. The first three had made Bhutan all the more conscious of the threat to its sovereignty which was imminent from being sandwiched between two big rival nations. Lets understand these events briefly. The continuous Chinese attacks on Tibet Autonomous Region disturbed the peace of the region. China even built a road through from Sinkiang to Tibet, cutting across territories claimed by India, very near to Bhutan. To counter Chinese designs, Nehru visited Bhutan and convinced the Royal Government to accept Indias assistance in building roads through Bhutan to India, to connect strategic territories. Nehru even announced in the parliament that India would consider any aggression on Bhutan as an aggression on India. With Chinese occupation of Tibet in 1959 and Dalai Lamas political asylum being granted by India, the latter became a bà ªte noir for China and it continued to build troops along the Indo-Bhutan border. The King of Bhutan also came to India to seek its guaranteed military support in case of a war while re-iterating Bhutans acceptance of Indias guidance in foreign matters as a quid pro quo. With these turn of events India and Bhutan came closer. The Sino-Indian War of 1962 was a setback for Indo-Bhutan relations. Bhutan was jolted to the reality of a full blown war between the two rivals and also to the weak position of India vis-a-vis China. It created the suspicion that if India was unable to protect itself, how it could protect Bhutan. Since then Bhutan became wary of further antagonizing China. Though it still had leanings towards India, it began to expand its horizons to other powers of the world. India also encouraged Bhutans aspirations in this regard by sponsoring Bhutans name at international fora such as UN and NAM. The assassination of Bhutanese PM Jigme Palde Dorji in 1964 led to allegations of Indian officials involvement in the crime and also its interference in domestic matters. However, the air was cleared soon and in 1968, both countries decided to open their diplomatic missions. India sent a Special officer to Thimpu who would help Bhutan foster ties with the outside world. In order to fulfill the condition of having diplomatic missions in other UN countries so as to gain UN membership, Bhutan also decided to open its mission office in New Delhi. During 1960s and 1970s the relationship remained friendly and stable under the leadership of King Jigmye Singye Wangchuk. Another incident that made Bhutan wary was the merger of Sikkim with India in 1974 following an uprising against the feudal exploitation and the monarchy. The Nepali Sikkimese forced Sikkim to merge with the Union of India. Bhutan thought of it as a sad loss of identity and sovereignty of a neighbouring small state. However, the wariness was overcome by the freedom of the newly opened Bhutan. It reached to far-off countries like France, USA, New Zealand, UK, Australia etc. during the 1970s. After that India could not dictate to Bhutan, the terms of engagement with other friendly countries. In 1975, it resulted in opening up of trade and economy to Indian markets and also co-operation in the Hydro Power sector throughout the 1970s 80s. During the Janta Government rule India pursued a policy of Beneficial Bilateralism under which India ceded to Bhutans request for establishing bilateral relations with China by sending a diplomatic note to the Chinese embassy in India in 1981. Since then Sino-Bhutan relations have been mainly dominated by boundary negotiations and several rounds of negotiations have been held till now. During the 1980s Bhutan continued to embark on its new journey to open up-to the world while still maintaining friendly relations with India. By now, liberal interpretation of Article 2 of the Treaty of 1949 was already an established custom between the two neighbours. In 1988, the Chukha hydel project was inaugurated by President Venkatraman, having built by Indian technical and financial assistance. The 1990s were marked with several ups and downs for both countries. On one hand the Nepali refugee problem raised its head, on the other there were anti Monarchical and pro-democracy movements taking seed in the country. Still Bhutan did a successful balancing act at many points in time. It supported Indias stand on issues like CTBT, NPT, permanent seat in UNSC, cross border terrorism etc. During the late 90s and early 2000s Bhutan was caught in a Catch 22 situation regarding formation of a Joint Indo-Bhutan Army for purging ULFA and BODO militants. On the one hand it did not want to provoke Chinese, who raise their brow on Indian military presence in Bhutan and on the other they did not want the anti-monarchical forces to join hands with the militants as the ultra nationalists would see Indian intervention as compromise of Bhutans sovereignty. After carefully weighing the pros and cons of all actions, Bhutan finally decided in 2000, to arm and train the Royal Bhutanese Army against the militants hiding in the border areas which were finally purged out in the Operation Flush Out. After the pro-democracy movement took roots in Bhutan, several changes came into the national consciousness of the Himalayan Nation. The process of debate and discussion on Bhutans foreign and security policy has started in right earnest. Besides trade and development partnership, power co-operation, climate change, people to people exchangeare all pointers of the deeper engagement they share. Interaction between the democratic institutions of the two countries such as the Parliament and Election Commission has also increased. However, at the domestic level, issues of trade imbalance, disadvantages of over-dependence on India and poor delivery mechanism are being debated in the parliament and the media with increasing regularity. In the national assembly, the representatives are pushing for settling of border dispute with China and normalising relationship with China. Apart from Japan and India, China is likely to come up as a major economic player in Bhutan. On the ethnic front, the issue of Bhutanese refugees of Nepalese origin remains unresolved. This has the potential to strain Nepal-Bhutan relationship and complicate internal security situation in Bhutan. There is also the likelihood of Indian insurgent groups reusing Bhutanese territory against Indian interests. In the larger context, the bilateral relationship has so far been a rock through time. However, with aspirations come challenges and new choices. This is exactly what todays Bhutan is going through. There are several policy options for it today. The question is whether it will continue to look at India as friend indeed and a partner for all times and strengthen its relationship or try to diversify and move away from it. Which option it will exercise? Only time will tell. CHAPTER 3: The Chinese Externality (Sino-Bhutan Relations) 3.1 The Background: With the above backgrounder, we will now look at the specific major issues at hand which could be of particular interest to Indian Foreign Policy makers. The Sino-Bhutan relationship has always been and will always be the pivot of Indias political relationship with Bhutan. It is of great significance because of the security threat involved to Indias eastern sector, given the suspicious actions of the PRC and the acrimonious border dispute between the two regional powers. For India, Bhutan is a traditional ally and a kind of buffer for its territorial security in the eastern theatre. For China, Bhutan forms one of the fingers of the five finger policy. China considers Tibet as the palm consisting of five fingers namely, Ladakh, Nepal, Sikkim, Bhutan and Arunachal Pradesh and so it has always strived for a domineering position vis-à  -vis the small states. In this quest for power, Chinas greatest political rival is India. And history of turmoil in the Himalayas is marked by Chinese excursions into the border regions of India which have been mentioned above. Due to these hostilities Bhutan has always turned to India as a friend and advi sor. Whereas China, unlike India, even refused to recognize Bhutans status of an independent nation since the start. That is why bilateral relations have remained strained between the two countries. And in order to assert its suzerainty over Bhutan, China has kept alive the dispute over the 470km border between itself and Bhutan. It has four disputed areas that stretch from Dhoklam in the west, Charithang, Sinchulimpa and Dramana pasture land. China is claiming maximum territory in the western sector that is close to the tri-junction of Bhutan, China and India for strategic purposes. It has offered Thimphu a deal: it wants Bhutans northwestern areas in exchange for recognizing Bhutans control over the central areas. The PRC wants Bhutan to compromise on the Chumbi valley which is of extreme strategic importance to India.   The PRC has outlined its plan of extending the railway network from Lhasa to Zangmu on the Nepal border. According to this blueprint, yet another line will bran ch out midway from the line at Shigatse. This line will move east and go up to Yadong, at the mouth of Chumbi Valley- strategically located at the tri -junction of India-China-Bhutan. So far, Bhutan has largely toiled under the influence of India. India-Bhutan relations were revised in 2007 with the establishment of democracy and now it is more of an equal relation; with Bhutan being freed from the condition of accepting Indias guidance in its external affairs. As democracy started taking ground, special ties with India have been questioned by many quarters in Bhutan. There are lobbies which argue that a Nepal like policy of neutrality towards both countries, India China, would be more beneficial as Bhutan could then get the best of both worlds, even by playing one card against the other. Also Bhutan realizes that it cannot afford to ignore the Chinese overtures without creating animosity between the two. Thus, to neutralize its relationship, Bhutan has started turning towards China. Perhaps, Bhutan is trying to come out of Indias shadow and seeks to play a more dynamic role internationally. Besides strategic interests, Bhutan has justified economic interests in opening up-to China, the fastest growing economy. Beijing is exporting farming and telecommunication equipment and has also offered to invest in projects related to health and education services. Unquestionably, for China, Bhutan is also an attractive destination for investment for reasons other than economic. This may not be significant in amou

“Good Old Country People”-Pride Is Stronger Than You Think Essay

â€Å"Good Old Country People† –Pride is Stronger Than Most Think Pride throughout literature has been to a great extent manipulated by writers in positive and negative visible radiations to reflect their intended intent. In the bulk of Flannery O’Conner‘s narratives. characters who have pride exude more haughtiness than they do assurance. and as a consequence these characters condescend towards those of lower criterions. In â€Å"Good Country People. † O’Conner onslaughts pride to be a negative influence on society in which the cardinal character Hulga has so much pride that she condescends towards others. Here. Hulga condescends towards her female parent. Mrs. Freeman. and the bible salesman by handling them as idiots and is finally punished for it by losing her leg. O’Conner defines Hulga’s pride but lets the reader determine and assail how negative it is and hence how appropriate her penalty is for her actions. A clear illustration of the pride in herself that Hulga ( besides known as Joy ) displays is seen by the manner that she believes she is better than the state. â€Å"Joy had made it kick that if it had non been this status. she would be far from these ruddy hills and good state people. She would be in a university talking to people who knew what she was speaking about† ( 175 ) . Hulga clearly indicates in this statement that she would instead non hold to cover with naif state people. and would instead speak to those which are every bit smart as she is. O’Conner merely describes Hulga’s feelings about the state but leaves it up to the readers to make up one's mind whether such feelings are the right 1s to hold. The natural reaction of the reader that O’Conner would be seeking to bring on is one that rejects the feelings. Ideally the reader would see that Hulga is non handling the state people as peers to university pupils and hence see that Hulga is condescending in a manner that makes her experience superior while exudating negative pride. Another illustration of the manner O’Conner lets the reader make up one's mind how negative Hulga’s pride is can be shown when she talks to the bible salesman. When Hulga is confronted by the salesman about non believing in God. the salesman claims that she isn’t â€Å"saved† because of it. Hulga so pompously replies that â€Å"I’m saved and you are damned† ( 182 ) . This statement entirely clearly shows how much better Hulga thinks she is than the naif bible salesman. She thinks that although she doesn’t believe in God she is much smarter than the salesman. and therefore she is blessed for being smart and the salesman is damned for being dense. The reader is so one time once more enticed to dislike Hulga’s personality and the pride that goes along with it. In the terminal she is punished for her iniquitous self-importance when she loses her leg. O’Conner so lets the reader non merely make up one's mind whether the penalty is right after seeing Hulga’s disdainful nature. but besides to what extent Hulga should be punished. Should she stop up acquiring aid back to her place or merely creep her manner back? Throughout â€Å"Good Country People† . Flannery O’Conner finally is assailing pride. and she does do it clear that she is making so. However she does this through the emotional and mental rejection of such pride from the reader.

The Juice

chapter seven measuring domestic output and national income CHAPTER OVERVIEW News headlines frequently report the status of the nation’s economic conditions, but to many citizens the information is confusing or incomprehensible. This chapter acquaints students with the basic language of macroeconomics and national income accounting. GDP is defined and explained. Then, the differences between the expenditure and income approaches to determining GDP are discussed and analyzed in terms of their component parts. The income and expenditure approaches are developed gradually from the basic expenditure-income identity, through tables and figures.The importance of investment is given considerable emphasis, including the nature of investment, the distinction between gross and net investment, the role of inventory changes, and the impact of net investment on economic growth. On the income side, nonincome charges—depreciation and indirect business taxes—are covered in detai l because these usually give students the most trouble. Other measures of economic activity are defined and discussed, with special emphasis on using price indexes. The purpose and procedure of deflating and inflating nominal GDP are carefully explained and illustrated.Finally, the shortcomings of current GDP measurement techniques are examined. Global comparisons are made with respect to size of national GDP and size of the underground economy. The Last Word looks at the sources of data for the GDP accounts. INSTRUCTIONAL OBJECTIVES After completing this chapter, students should be able to 1. State the purposes of national income accounting. 2. List the components of GDP in the output (expenditures) approach and in the income approach. 3. Compute GDP using either the expenditure or income approach when given national income data. 4. Differentiate between gross and net investment. . Explain why changes in inventories are investments. 6. Discuss the relationship between net investmen t and economic growth. 7. Compute NDP, NI, PI, and DI when given relevant data. 8. Describe the system represented by the circular flow in this chapter when given a copy of the diagram. 9. Calculate a GDP price index using simple hypothetical data. 10. Find real GDP by adjusting nominal GDP with use of a price index. 11. List seven shortcomings of GDP as an index of social welfare. 12. Explain what is meant by the underground economy and state its approximate size in the U.S. and how that compares to other nations. 13. Give an estimate of actual 2002 (or later) U. S. GDP in trillions of dollars and be able to rank the U. S. relative to a few other countries. 14. Define and identify terms and concepts listed at the end of the chapter. LECTURE NOTES I. Assessing the Economy’s Performance A. National income accounting measures the economy’s performance by measuring the flows of income and expenditures over a period of time. B. National income accounts serve a purpose for the economy similar to income statements for business firms.C. Consistent definition of terms and measurement techniques allows us to use the national accounts in comparing conditions over time and across countries. D. The national income accounts provide a basis for appropriate public policies to improve economic performance. II. Gross Domestic Product A. GDP is the monetary measure of the total market value of all final goods and services produced within a country in one year. 1. Money valuation allows the summing of apples and oranges; money acts as the common denominator. (See Table 7. 1. ) 2.GDP includes only final products and services; it avoids double or multiple counting by eliminating any intermediate goods used in production of these final goods or services. (Table 7. 2 illustrates how including sales of intermediate goods would overstate GDP. ) 3. GDP is the value of what has been produced in the economy over the year, not what was actually sold. B. GDP Excludes Nonprodu ction Transactions 1. GDP is designed to measure what is produced or created over the current time period. Existing assets or property that was sold or transferred, including used items, are not counted. . Purely financial transactions are excluded. a. Public transfer payments, like social security or cash welfare benefits. b. Private transfer payments, like student allowances or alimony payments. c. The sale of stocks and bonds represent a transfer of existing assets. (However, the brokers’ fees are included for services rendered. ) 3. Secondhand sales are excluded; they do not represent current output. (However, any value added between purchase and resale is included, e. g. , used car dealers. ) C. Two Ways to Look at GDP: Spending and Income. 1.What is spent on a product is income to those who helped to produce and sell it. 2. This is an important identity and the foundation of the national accounting process. D. Expenditures Approach (See Figure 7. 1 and Table 7. 3. ) 1. GDP is divided into the categories of buyers in the market; household consumers, businesses, government, and foreign buyers. 2. Personal Consumption Expenditures—(C)—includes durable goods (goods lasting 3 years or more), nondurable goods, and services. 3. Gross Private Domestic Investment—(Ig) a. All final purchases of machinery, equipment, and tools by businesses. . All construction (including residential). c. Changes in business inventory. i. If total output exceeds current sales, inventories build up. ii. If businesses are able to sell more than they currently produce, this entry will be a negative number. d. Net Private Domestic Investment—(In). i. Each year as current output is being produced, existing capital equipment is wearing out and buildings are deteriorating; this is called depreciation or consumption of fixed capital. ii. Gross Investment minus depreciation (consumption of fixed capital) is called net investment. iii.If more new structures and capital equipment are produced in a given year than are used up, the productive capacity of the economy will expand. (Figure 7. 2) iv. When gross investment and depreciation are equal, a nation’s productive capacity is static. v. When gross investment is less than depreciation, an economy’s production capacity declines. vi. CONSIDER THIS †¦ Stock Answers about Flows 4. Government Purchases (of consumption goods and capital goods) – (G) a. Includes spending by all levels of government (federal, state, and local). b.Includes all direct purchases of resources (labor in particular). c. This entry excludes transfer payments since these outlays do not reflect current production. 5. Net Exports— (Xn) a. All spending on final goods produced in the U. S. must be included in GDP, whether the purchase is made here or abroad. b. Often goods purchased and measured in the U. S. are produced elsewhere (Imports). c. Therefore, net exports, (Xn) is the difference : (exports minus imports) and can be either a positive or negative number depending on which is the larger amount. 6. Summary: GDP = C + Ig + G + Xn E.Income Approach to GDP (See Table 7. 3): Demonstrates how the expenditures on final products are allocated to resource suppliers. 1. Compensation of employees includes wages, salaries, fringe benefits, salary and supplements, and payments made on behalf of workers like social security and other health and pension plans. 2. Rents: payments for supplying property resources (adjusted for depreciation it is net rent). 3. Interest: payments from private business to suppliers of money capital. 4. Proprietors’ income: income of incorporated businesses, sole proprietorships, partnerships, and cooperatives. . Corporate profits: After corporate income taxes are paid to government, dividends are distributed to the shareholders, and the remainder is left as undistributed corporate profits. 6. The sum of the above entries equals national in come: all income earned by American-supplied resources, whether here or abroad. 7. Adjustments required to balance both sides of the account: a. Indirect business taxes: general sales taxes, excise taxes, business property taxes, license fees and customs duties (the seller treats these taxes as a cost of production). . Depreciation/Consumption of Fixed Capital: The firm also regards the decline of its capital stock as a cost of production. The depreciation allowance is set aside to replace the machinery and equipment used up. In addition to the depreciation of private capital, public capital (government buildings, port facilities, etc. ), must be included in this entry. c. Net foreign factor income: National income measures the income of Americans both here and abroad. GDP measures the output of the geographical U. S. regardless of the nationality of the contributors.To make this final adjustment, the income of foreign nationals must be added and American income earned abroad must b e subtracted. Sometimes this entry is a negative number. (Without this adjustment you have GNP. ) III. Other National Accounts (see Table 7. 4) A. Net domestic product (NDP) is equal to GDP minus depreciation allowance (consumption of fixed capital). B. National income (NI) is income earned by American-owned resources here or abroad. Adjust NDP by subtracting indirect business taxes and adding net American income earned abroad. Note: This may be a negative number if foreigners earned more in U. S. than American resources earned abroad. ) C. Personal income (PI) is income received by households. To calculate, take NI minus payroll taxes (social security contributions), minus corporate profits taxes, minus undistributed corporate profits, and add transfer payments. D. Disposable income (DI) is personal income less personal taxes. IV. Circular Flow Revisited (see Figure 7. 3) A. Compare to the simpler model presented in earlier chapters. Now both government and foreign trade sectors ar e added.B. Note that the inside covers of the text contain a useful historical summary of national income accounts and related statistics. V. Nominal versus Real GDP A. Nominal GDP is the market value of all final goods and services produced in a year. 1. GDP is a (P x Q) figure including every item produced in the economy. Money is the common denominator that allows us to sum the total output. 2. To measure changes in the quantity of output, we need a yardstick that stays the same size. To make comparisons of length, a yard must remain 36 inches.To make comparisons of real output, a dollar must keep the same purchasing power. 3. Nominal GDP is calculated using the current prices prevailing when the output was produced, but real GDP is a figure that has been adjusted for price level changes. B. The adjustment process in a one-good economy (Table 7. 5). Valid comparisons cannot be made with nominal GDP alone, since both prices and quantities are subject to change. Some method to sepa rate the two effects must be devised. 1. One method is to first determine a price index, (see Equation 1) and then adjust the nominal GDP figures by dividing y the price index (in hundredths) (see Equation 2). 2. An alternative method is to gather separate data on the quantity of physical output and determine what it would sell for in the base year. The result is Real GDP. The price index is implied in the ratio: Nominal GDP/Real GDP. Multiply by 100 to put it in standard index form (see Equation 3). C. Real World Considerations and Data 1. The actual GDP price index in the U. S. is called the chain-type annual-weights price index, and is more complex than can be illustrated here. 2.Once nominal GDP and the GDP price index are established, the relationship between them and real GDP is clear (see Table 7. 7). 3. The base year price index is always 100, since Nominal GDP and Real GDP use the same prices. Because the long-term trend has been for prices to rise, adjusting Nominal GDP to Real GDP involves inflating the lower prices before the base year and deflating the higher prices after the base year. 4. Real GDP values allow more direct comparison of physical output from one year to the next, because a â€Å"constant dollar† measuring device has been used. The purchasing power of the dollar has been standardized at the base-year level. ) VI. Shortcomings of GDP A. GDP doesn’t measure some very useful output because it is unpaid (homemakers’ services, parental child care, volunteer efforts, home improvement projects). B. GDP doesn’t measure improvements in product quality or make allowances for increased leisure time. C. GDP doesn’t measure improved living conditions as a result of more leisure. D. GDP makes no value adjustments for changes in the composition of output or the distribution of income. . Nominal GDP simply adds the dollar value of what is produced; it makes no difference if the product is a semiautomatic rifle or a jar of baby food. 2. Per capita GDP may give some hint as to the relative standard of living in the economy; but GDP figures do not provide information about how the income is distributed. E. The Underground Economy 1. Illegal activities are not counted in GDP (estimated to be around 8% of U. S. GDP). 2. Legal economic activity may also be part of the â€Å"underground,† usually in an effort to avoid taxation. F.GDP and the environment 1. The harmful effects of pollution are not deducted from GDP (oil spills, increased incidence of cancer, destruction of habitat for wildlife, the loss of a clear unobstructed view). 2. GDP does include payments made for cleaning up oil spills and the cost of health care for cancer victims. G. Noneconomic Sources of well-being like courtesy, crime reduction, etc. , are not covered in GDP. VII. LAST WORD: Feeding the GDP Accounts A. GDP is compiled by the Bureau of Economic Analysis (BEA) in the U. S. Commerce Department.Where does it get its data? Explanation follows. B. Consumption data comes from 1. Census Bureau’s â€Å"Retain Trade Survey† from a sample of 22,000 firms. 2. Census Bureau’s â€Å"Survey of Manufacturers,† which gets information on consumer goods shipments from 50,000 firms. 3. Census Bureau’s â€Å"Service Survey† of 30,000 service businesses. 4. Industry trade sources like auto and aircraft sales. C. Investment data comes from 1. All the consumption sources listed above. 2. Census construction surveys. D. Government purchase data is obtained from 1. U. S.Office of Personnel Management, which collects data on wages and benefits. 2. Census construction surveys of public projects. 3. Census Bureau’s â€Å"Survey of Government Finance. † E. Net export information comes from 1. U. S. Customs Service data on exports and imports. 2. BEA surveys on service exports and imports. ANSWERS TO END-OF-CHAPTER QUESTIONS 7-1In what ways are national income stati stics useful? National income accounting does for the economy as a whole what private accounting does for businesses. Firms measure income and expenditures to assess their economic health.The national income accounting system measures the level of production in the economy at some particular time and helps explain the significance at that level. By comparing national accounts over a number of years, we can track the long-run course of the economy. Information supplied by national accounts provide a basis for designing and applying public policies to improve the performance of the economy. Without national accounts, economic policy would be guesswork. National income accounting allows us to assess the health of an economy and formulate policies to maintain and improve that health. -2Explain why an economy’s output is also its income? Everything that is produced is sold, even if the â€Å"selling,† in the case of inventory, is to the producing firm itself. Since the same amount of money paid out by the buyers of the economy’s output is received by the sellers as income (looking only at a private-sector economy at this point), â€Å"an economy’s output is also its income. † 3. (Key Question) Why do national income accountants include only final goods in measuring GDP for a particular year? Why don’t they include the value of stocks and bonds sold?Why don’t they include the value of used furniture bought and sold? The dollar value of final goods includes the dollar value of intermediate goods. If intermediate goods were counted, then multiple counting would occur. The value of steel (an intermediate good) used in autos is included in the price of the auto (a final product). This value is not included in GDP because such sales and purchases simply transfer the ownership of existing assets; such sales and purchases are not themselves (economic) investment and thus should not be counted as production of final goods and services.Used furniture was produced in some previous year; it was counted as GDP then. Its resale does not measure new production. 7-4What is the difference between gross private domestic investment and net private domestic investment? If you were to determine net domestic product (NDP) through the expenditures approach, which of these two measures of investment spending would be appropriate? Explain. Gross private domestic investment less depreciation is net private domestic investment. Depreciation is the value of all the physical capital—machines, quipment, buildings—used up in producing the year’s output. Since net domestic product is gross domestic product less depreciation, in determining net domestic product through the expenditures approach it would be appropriate to use the net investment measure that excludes depreciation, that is, net private domestic investment. 7-5Why are changes in inventories included as part of investment spending? Suppose inve ntories declined by $1 billion during 2003. How would this affect the size of gross private domestic investment and gross domestic product in 2003? Explain.Anything produced by business that has not been sold during the accounting period is something in which business has invested—even if the â€Å"investment† is involuntary, as often is the case with inventories. But all inventories in the hands of business are expected eventually to be used by business—for instance, a pile of bricks for extending a factory building—or to be sold—for instance, a can of beans on the supermarket shelf. In the hands of business both the bricks and the beans are equally assets to the business, something in which the business has invested.If inventories declined by $1 billion in 2003, $1 billion would be subtracted from both gross private domestic investment and gross domestic product. A decline in inventories indicates that goods produced in a previous year have been used up in this year’s production. If $1 billion is not subtracted as stated, then $1 billion of goods produced in a previous year would be counted as having been produced in 2003, leading to an overstatement of 2003’s production. 7-6Use the concepts of gross and net investment to distinguish between an economy that has a rising stock of capital and one that has a falling stock of capital. In 1933 net private domestic investment was minus $6 billion. This means in that particular year the economy produced no capital goods at all. † Do you agree? Why or why not? Explain: â€Å"Though net investment can be positive, negative, or zero, it is quite impossible for gross investment to be less than zero. † When gross investment exceeds depreciation, net investment is positive and production capacity expands; the economy ends the year with more physical capital than it started with.When gross investment equals depreciation, net investment is zero and production ca pacity is said to be static; the economy ends the year with the same amount of physical capital. When depreciation exceeds gross investment, net investment is negative and production capacity declines; the economy ends the year with less physical capital. The first statement in wrong. Just because net investment was a minus $6 billion in 1933 does not mean the economy produced no new capital goods in that year. It simply means depreciation exceeded gross investment by $6 billion.So the economy ended the year with $6 billion less capital. The second statement is correct. If only one $20 spade is bought by a construction firm in the entire economy in a year and no other physical capital is bought, then gross investment is $20—a positive amount. This is true even if net investment is highly negative because depreciation is well above $20. If not even this $20 spade has been bought, then gross investment would have been zero. But gross investment can never be less than zero. 7-7D efine net exports.Explain how the United States’ exports and imports each affect domestic production. Suppose foreigners spend $7 billion on American exports in a given year and Americans spend $5 billion on imports from abroad in the same year. What is the amount of America’s net exports? Explain how net exports might be a negative amount. Net exports are a country’s exports of goods and services less its imports of goods and services. The United States’ exports are as much a part of the nation’s production as are the expenditures of its own consumers on goods and services made in the United States.Therefore, the United States’ exports must be counted as part of GDP. On the other hand, imports, being produced in foreign countries, are part of those countries’ GDPs. When Americans buy imports, these expenditures must be subtracted from the United States’ GDP, for these expenditures are not made on the United States’ prod uction. If American exports are $7 billion and imports are $5 billion, then American net exports are +$2 billion. If the figures are reversed, so that Americans export $5 billion and import $7 billion, then net exports are -$2 billion—a negative amount.For this to come about, Americans must either decrease their holdings of foreign currencies by $2 billion, or borrow $2 billion from foreigners—or do a bit of both. (Another option is to sell back to foreigners some of the previous American investments abroad. ) 7-8(Key Question) Below is a list of domestic output and national income figures for a given year. All figures are in billions. The questions that follow ask you to determine the major national income measures by both the expenditure and income methods. The results you obtain with the different methods should be the same. | | |Personal consumption expenditures |$245 | |Net foreign factor income earned |4 | |Transfer payments |12 | |Rents |14 | |Consumption of fixed capital (depreciation) |27 | |Social security contributions |20 | |Interest |13 | |Proprietors’ income |33 | |Net exports |11 | |Dividends |16 | |Compensation of employees |223 | |Indirect business taxes |18 | |Undistributed corporate profits |21 | |Personal taxes |26 | |Corporate income taxes |19 | |Corporate profits |56 | |Government purchases |72 | |Net private domestic investment 33 | |Personal saving |20 | | | | a. Using the above data, determine GDP by both the expenditure and the income approaches. Then determine NDP. b. Now determine NI: first, by making the required additions and subtractions from GDP; and second, by adding up the types of income that make up NI. c. Adjust NI (from part b) as required to obtain PI. d. Adjust PI (from part c) as required to obtain DI. (a)GDP = $388, NDP = $361 (b)NI = $339 (c)PI = $291 (d)DI = $265 7-9Using the following national income accounting data, compute (a) GDP, (b) NDP, (c) NI. All figures are in billions. | | | Compensation of employees |$194. 2 | |U. S. exports of goods and services |17. 8 | |Consumption of fixed capital (depreciation) |11. 8 | |Government purchases |59. 4 | |Indirect business taxes |14. | |Net private domestic investment |52. 1 | |Transfer payments |13. 9 | |U. S. imports of goods and services |16. 5 | |Personal taxes |40. 5 | |Net foreign factor income earned in U. S. |2. 2 | |Personal consumption expenditures |219. | | | | |(a) Personal consumption expenditures (C) |$219. 1 | | Government purchases (G) |59. 4 | | Gross private domestic investment (Ig) |63. 9 | | (52. 1 + 11. 8) | | | Net exports (Xn) (17. 8 – 16. 5) | 1. 3 | | Gross domestic product (GDP) |$343. | | | | |(b) Consumption of fixed capital | -11. 8 | | Net domestic product (NDP) |$331. 9 | | | | |(c) Net foreign factor income earned in U. S. |-2. 2 | | Indirect business taxes | -14. 4 | | National income (NI) |$315. 3 | -10Why do national income accountants compare the market value of the total outputs in various years rather than actual physical volumes of production? What problem is posed by any comparison over time of the market values of various total outputs? How is this problem resolved? If it is impossible to summarize oranges and apples as one statistic, as the saying goes, it is surely even more impossible to add oranges and, say, computers. If the production of oranges increases by 100 percent and that of computers by 10 percent, it does not make any sense to add the 100 percent to the 10 percent, then divide by 2 to get the average and say total production has increased by 55 percent.Since oranges and computers have different values, the quantities of each commodity are multiplied by their values or prices. Adding together all the results of the price times quantity figures leads to the aggregate figure showing the total value of all the final goods and services produced in the economy. Thus, to return to oranges and computers, if the value of orange prod uction increases by 100 percent from $100 million to $200 million, while that of computers increases 10 percent from $2 billion to $2. 2 billion, we can see that total production has increased from $2. 1 billion (= $100 million + $2 billion) to $2. 4 billion (= $200 million + $2. 2 billion).This is an increase of 14. 29 percent [= ($2. 4 billion – $2. 1 billion)/$2. 1 billion)]—and not the 55 percent incorrectly derived earlier. Comparing market values over time has the disadvantage that prices change. If the market value in year 2 is 10 percent greater than in year 1, we cannot say the economy’s production has increased 10 percent. It depends on what has been happening to prices; on whether the economy has been experiencing inflation or deflation. To resolve this problem, statisticians deflate (in the case of inflation) or inflate (in the case of deflation) the value figures for the total output so that only â€Å"real† changes in production are recorded .To do this, each item is assigned a â€Å"weight† corresponding to its relative importance in the economy. Housing, for example, is given a high weight because of its importance in the average budget. A book of matches would be given a very low weight. Thus, the price of housing increasing by 5 percent has a much greater effect on the price index used to compare prices from one year to the next, than would the price of a book of matches increasing by 100 percent. 7-11(Key Question) Suppose that in 1984 the total output in a single-good economy was 7,000 buckets of chicken. Also suppose that in 1984 each bucket of chicken was priced at $10. Finally, assume that in 1996 the price per bucket of chicken was $16 and that 22,000 buckets were purchased.Determine the GDP price index for 1984, using 1996 as the base year. By what percentage did the price level, as measured by this index, rise between 1984 and 1996? Use the two methods listed in Table 7-6 to determine real GDP for 198 4 and 1996. X/100 = $10/$16 = . 625 or 62. 5 when put in percentage or index form (. 625 x 100) [pic] or 60%(Easily calculated [pic]) Method 1:1996 = (22,000 x $16) ? 1. 0 = $352,000 1984 = (7,000 x $10) ? .625 = $112,000 Method 2:1996 = 22,000 x $16 = $352,000 1984 = 7,000 x $16 = $112,000 12. (Key Question) The following table shows nominal GDP and an appropriate price index for a group of selected years. Compute real GDP.Indicate in each calculation whether you are inflating or deflating the nominal GDP data. | | | | | | |Nominal GDP, |Price index |Real GDP, | |Year |Billions |(1996 = 100) |Billions | | | | | | | | | | | |1960 |$527. 4 | |22. 9 | |$ ______ | |1968 |911. 5 | |26. 29 | |$ ______ | |1978 |2295. 9 | |48. 22 | |$ ______ | |1988 |4742. 5 | |80. 22 | |$ ______ | |1998 |8790. 2 | |103. 22 | |$ ______ | | | | | | Values for real GDP, top to bottom of the column: $2,376. 7 (inflating); $3,467. (inflating); $4,761. 3 (inflating); $5,911. 9 (inflating); $8,516 (deflating). 7 -13Which of the following are actually included in this year’s GDP? Explain your answer in each case. a. Interest on an AT&T bond. b. Social security payments received by a retired factory worker. c. The services of a family member in painting the family home. d. The income of a dentist. e. The money received by Smith when she sells her economics textbook to a book buyer. f. The monthly allowance a college student receives from home. g. Rent received on a two-bedroom apartment. h. The money received by Josh when he resells his current-year-model Honda automobile to Kim. i.Interest received on corporate bonds. j. A 2-hour decrease in the length of the workweek. k. The purchase of an AT&T corporate bond. l. A $2 billion increase in business inventories. m. The purchase of 100 shares of GM common stock. n. The purchase of an insurance policy. (a)Included. Income received by the bondholder for the services derived by the corporation for the loan of money. (b)Excluded. A transfer payment from taxpayers for which no service is rendered (in this year). (c)Excluded. Not a market transaction. If any payment is made, it will be within the family. (d)Included. Payment for a final service. You cannot pass on a tooth extraction! (e)Excluded.Secondhand sales are not counted; the textbook is counted only when sold for the first time. (f)Excluded. A private transfer payment; simply a transfer of income from one private individual to another for which no transaction in the market occurs. (g)Included. Payment for the final service of housing. (h)Excluded. The production of the car had already been counted at the time of the initial sale. (i)Included. The income received by the bondholders is paid by the corporations for the current use of the â€Å"money capital† (the loan). (j)Excluded. The effect of the decline will be counted, but the change in the workweek itself is not the production of a final good or service or a payment for work done. (k) Excluded.A noninv estment transaction; it is merely the transfer of ownership of financial assets. (If AT&T uses the money from the sale of a new bond to carry out an investment in real physical assets that will be counted. ) (l)Included. The increase in inventories could only occur as a result of increased production. (m)Excluded. Merely the transfer of ownership of existing financial assets. (n)Included. Insurance is a final service. If bought by a household, it will be shown as consumption; if bought by a business, as investment—as a cost added to its real investment in physical capital. 7-14(Last Word) What government agency compiles the U. S. NIPA tables? In what U. S. epartment is it located? Of the several specific sources of information, name one source for each of the four components of GDP: consumption, investment, government purchases, and net exports. The Bureau of Economic Analysis (BEA) in the Department of Commerce compiles GDP statistics. The Census Bureau provides survey data for consumption, investment, and government purchases. Consumption figures also come from industry trade sources as does some investment data. The U. S. Office of Personnel Management also provides data on government spending on services. Net export figures come from the U. S. Customs Service and BEA surveys on service exports and imports.

Industrial Revolutions During Europe During The Industrial...

Industrial Revolution in Europe Before the industrial revolution, Europe was mostly dominated by farmers but as the industrial revolution progressed this changed dramatically. Industrial revolution had a significant impact in the process by making new demands that shaped the way of life through increased competition and technological innovation. Generally, it was a historical period that sparked in a stroke a number numerous changes in the economic, social and political dimensions. It is considered as a period that made the biggest impact on 19th century Europe considering that it was the period that the countries realized significant progress that shaped their economies in great details with nationalism and imperialism as well being direct impacts of the revolution. Not many could have anticipated the rapid rise of the European industry that was realized from industrial revolution. 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The theories and inventions that Copernicus, Galileo, and Newton provided were the fist major advances during the scientific revolution , and perhaps were the most profound. The European expansion during the 15th andRead MorePositive Aspects Compared to the Negative Aspects of the Industrial Revolution1404 Words   |  6 PagesThe era known as the Industrial Revolution was a period in which fundamental changes occurred in agriculture, textile and metal manufacture, transportation, economic policies and the social structure in England. It is almost impossible to imagine what the world would be like if the effects of the Industrial Revolution were swept away. Electric lights would go out. Automobiles and airplanes would vanish. Telephones, radios, and television would disappear. Most of the stocks on the shelves of departmentRead MoreThe Industrial Revolution Of Europe1553 Words   |  7 Pagesthe changes that brought about the Industrial Revolution were (1) the invention of machines to do the work of hand tools; (2) the use of steam, and later of other kinds of power, in place of the muscles of human beings and of animals; and (3) the adoption of the fa ctory system† (Industrial Revolution). The Industrial Revolution was a big event that happened in Europe. Those three main changes impacted everything in a huge way. The Industrial Revolution in Europe was a positive occurrence that changedRead MoreFrankenstein: Science and the Industrial Revolution1212 Words   |  5 PagesFrankenstein: Science and the Industrial Revolution Frankenstein, written by author Mary Shelley, was a romantic based story written in Europe during the eighteen hundreds. During this time period, Europe was experiencing many social and economic changes. Many of these changes were a product of the industrial revolution of Europe. This time period can be defined and era of exploration, discovery and industrialization in which ideas were pushed to the limits. Victor’s creation of Frankenstein is