1. What does GDP measure? What does 'real', as in the term 'real GDP' refer to?Why do economists prefer to use real GDP as a measure economic wellbeing rather than nominal GDP?

1. What components of GDP (if any) would be affected by the following transactions? Explain the reasons for your answers [Note that to answer the question, you need to provide an explanation as to why you have chosen this particular component of GDP]:

1. Bosch, a German corporation, expands its design and engineering centre located in Melbourne
2. A business advisor takes parental leave to care for their young family
3. An Australian buys a bottle of Californian wine at a store in Melbourne
4. You download a copy of a movie and sell it for $10

1. Refer to the diagram below. At point C, what stage of the business cycle is this economy in? Is the economy in recession at point C? Describe the relationship between real GDP and potential GDP as the economy moves from point A to point E.

Real GDP (billions of 1987 dollars) 4,000 3,800 3,600 d 3, 400 h 3,200 C 3,000 2.800 1970 1972 1974 1976 1978 1980 real GOP growth trend