Chapter 7: Measuring Domestic Output And National Income

Question 1

Aggregate accounting

Answer 1

• national income accounting

- set of rules and definitions for measuring economic activity in the whole Economy

Question 2

Aggregate accounting measures…

Answer 2

Aggregate production, expenditure, and income

Question 3

GDP

Answer 3

Total market value of all final goods and services produced in an economy in a one year period

Question 4

Expenditure categories of GDP

Answer 4

1- consumption
2- investment
3- government spending
4- net exports

Question 5

Net exports

Answer 5

Spending on exports minus spending on imports

X-M

Question 6

GDP=

Answer 6

C+I+G+(X-M)

Question 7

Flow concept

Answer 7

• I.e. Gdp

- the market value of total final output a country produces per year

Question 8

Stock concept

Answer 8

• I.e. Wealth accounts

- balance sheet of an economy’s assets and liabilities

Question 9

GDP counts final output but not…

Answer 9

Intermediate goods

Question 10

Final output

Answer 10

Goods and services purchased for final use

Question 11

Intermediate products

Answer 11

Used as an input in the production of some other product

Question 12

Counting the sale of both final and intermediate goods would result in…

Answer 12

Double counting

Question 13

Two ways of eliminating intermediate goods

Answer 13

1- calculate only final output

2- follow the value added approach

Question 14

Value added approach

Answer 14

• Increase in value that a firm contributes to a product or service
• calculated by subtracting intermediate goods (cost of materials that a firm uses to produce) from the value of its sales

Question 15

What’s counted in GDP?

Answer 15

• Value added by a used car dealer

- commissions paid to stock brokers

Question 16

What’s not counted in GDP?

Answer 16

• value of resale goods
• sales of stocks or bonds
• government transfer payments
• work of house-spouses

Question 17

Ndp

Answer 17

• GDP adjusted for depreciation

- measures output available for purchase

Question 18

Depreciation

Answer 18

Amount of capital used up in producing that years gdp

Question 19

NDP=

Answer 19

C+I+G+(X-M)-Depreciation

Question 20

Net investment

Answer 20

Gross investment minus depreciation

Question 21

GNP

Answer 21

• Aggregate final output of citizens and businesses of an economy in one year
• output produced by a country’s citizens

Question 22

GNP=

Answer 22

GDP+ net foreign factor income

Question 23

Net foreign factor income

Answer 23

Income from foreign domestic factor sources minus foreign factor income earned domestically

Question 24

Aggregate income consists of

Answer 24

• employee compensation
• rent
• interest
• profits

Question 25

Aggregate income=

Answer 25

Aggregate production

Question 26

Profit makes income side=

Answer 26

Expenditure side

Question 27

Nominal GDP

Answer 27

GDP calculated at current prices

Question 28

GDP deflator

Answer 28

Nominal GDP/real GDP x 100

Question 29

Real GDP

Answer 29

Nominal GDP adjusted for inflation

Question 30

Real GDP=

Answer 30

Nominal GDP/GDP deflator x 100

Question 31

Nominal interest rate

Answer 31

Rate you pay or receive to borrow or lend money

Question 32

Real interest rate

Answer 32

Nominal interest rate adjusted for inflation

Question 33

Real interest rate=

Answer 33

Nominal interest rate-inflation rate

Question 34

Real wealth

Answer 34

Value of productivity capacity of the assets of an economy measured by the goods and services it can produce now and in the future

Question 35

Nominal wealth

Answer 35

Value of these assets measured in current prices

Question 36

Asset price inflation

Answer 36

A rise in the price of assets unrelated to increases in their productive capacity

Question 37

Limitations of aggregate accounting

Answer 37

- due to differences in nonmarket activities and difference in product prices, per capital GDP may be a misleading measure of living standards - GDP measures economic activity not welfare - measurement problems - subcategories are often interdependent

Question 38

Purchasing power parity

Answer 38

Method of comparing income that takes the different relative prices among countries into account

Question 39

Genuine progress indicator (gpi)

Answer 39

Makes a variety of adjustments to GDP to better measure the progress of society rather than just economic activity -includes social goals