Jan 20

Question 1

components of factor incomes

Answer 1

1. wages, salaries, supplementary incomes
2. interest and other investment incomes
3. business profits (including rent)

Question 2

non-factor payments

Answer 2

1. depreciation
2. indirect taxes less subsidies

Question 3

depreciation

Answer 3

refers to the DECREASE in VALUE OF AN ASSET over time

due to factors like wear and tear, obsolescence or age

applied to capital goods like machinery, equipment, buildings

Question 4

capital goods

Answer 4

machinery, equipment, buildings

Question 5

formula for NDP

Answer 5

NDP = GDP - depreciation

Question 6

chart: what goes into GDP from expenditure side?

Answer 6

1. personal consumption
2. government purchases
3. net exports (exports - imports)
4. net private investment
5. depreciation

Question 7

chart: what goes into GDP from income side?

Answer 7

1. wages and salaries (pre-tax)
2. interest income
3. business profits
4. indirect taxes
5. minus subsidies
6. depreciation

Question 8

GNP

Answer 8

gross national product

measure of national output closely related to GDP

difference between GDP and GNP is the difference between INCOME PRODUCED and INCOME RECEIVED

Question 9

GDP versus GNP

Answer 9

difference between GDP and GNP is the difference between INCOME PRODUCED and INCOME RECEIVED

because some money generated leaves the circular flow of income and goes overseas, and we also receive income from abroad

GNP includes these distinctions - gets us closer to real income

Question 10

Toyota factory in Canada: GDP versus GNP

Answer 10

value added: $100 but $5 remitted to Toyota’s foreign owners

GDP would count $100

GNP would minus the $5, coming out to $95 for CAD citizens

Question 11

Cad-owned business located outside Canada: GDP versus GNP

Answer 11

value added: $100 but $5 remitted to Canadian owners

GDP of foreign country counts $100

Canadian GNP counts $5

Question 12

GDP is superior than GNP for measuring…

Answer 12

domestic economic activity

Question 13

GNP is superior than GDP for measuring…

Answer 13

living standards of residents

Question 14

what is a measure even more refined than GNP?

Answer 14

disposable personal income

Question 15

disposable personal income

Answer 15

start with GNP

1. MINUS any part not actually paid to households
2. MINUS personal income taxes
3. PLUS transfer payments received by households

Question 16

changes in NOMINAL GDP reflect…

Answer 16

changes in PRICE and QUANTITIES

because uses current prices

Question 17

changes in REAL GDP reflect…

Answer 17

changes in QUANTITIES

because uses base year prices

Question 18

GDP deflator equation

Answer 18

(nominal GDP / real GDP) x 100

ie. GDP deflator2002 = (P2002 x Q2002) / (P2000 x Q2002) x 100

Question 19

what does the GDP deflator implicitly define?

Answer 19

a price index

Question 20

is the GDP deflator a comprehensive index of prices?

Answer 20

yes

because it includes prices of ALL GOODS and SERVICES produced in the country

Question 21

recap: what does the GDP deflator tell you?

Answer 21

measures the level of prices of all new, domestically produced, final goods and services in an economy

tells you how much prices have RISEN/FALLEN over time, ADJUSTING INFLATION for GDP

shows how much CHANGE IN GDP IS DUE TO PRICE CHANGES rather than actual GROWTH IN OUTPUT

Question 22

GDP deflator shows how much change in GDP is due to…

Answer 22

changes in PRICE

rather than growth in output

Question 23

graph of nominal and real GDP - the two lines cross at what year?

Answer 23

cross at the year used as base year in the computation of real GDP

Question 24

nominal GDP tells us about the _____ value of output, while real GDP tells us about the _______ of _______ output

Answer 24

nominal: MONEY value of output

real: QUANTITY of PHYSICAL output

Question 25

when would the GDP deflator be 100?

Answer 25

at the base year when nominal GDP equals real GDP

Question 26

do the CPI and GDP deflator move together?

Answer 26

not always CPI tracks CONSUMER PRICES and GDP deflator tracks PRICES OF GOODS PRODUCED IN CANADA ie. price of coffee increases - this will affect the CPI but not the GDP ie. if there are goods that we export that change in price (wheat) - will change the GDP but less the CPI (because don't consume these domestically)

Question 27

look at GDP deflator to see how prices of goods...

Answer 27

that WE PRODUCE are changing whereas CPI tells us how prices of goods WE CONSUME are changing

Question 28

while GDP is an excellent measure of flow of economic activity in organized markets in a given year...

Answer 28

much economic activity TAKES PLACE OUTSIDE MARKETS that the national income accountants survey

Question 29

activities that take place outside the markets surveyed by national income accountants

Answer 29

1. illegal activities 2. underground economy (paid in cash) 3. home production, volunteering, leisure 4. free products in the digital world 5. economic "bads"

Question 30

although current approach to measuring GDP isn't perfect, it's useful because...

Answer 30

1. would be hard to correct the major omissions 2. level of GDP may be inaccurate, but the CHANGE in GDP is a good indication of the changes in economic activity 3. to DESIGN POLICIES to control inflation, it's necessary to know the FLOW OF MONEY PAYMENTS made to produce and purchase Canadian output

Question 31

to what extent does GDP provide a useful measure of our living standards?

Answer 31

1. changes in real per capita income are a good measure of AVERAGE MATERIAL LIVING STANDARDS 2. but material living standards are ONLY PART of what most people consider their overall wellbeing

Question 32

human development income (HDI)

Answer 32

measure includes large number of factors that contribute to human welfare - of which GDP is only one 1. crime rates 2. pollution 3. congestion 4. longevity 5. scenic beauty 6. income distribution 7. educational achievement 8. political freedom

Question 33

although Canada's real per capita GDP doesn't place among the top few countries...

Answer 33

it is highly ranked on the HDI (accounts for things like crime rates, pollution, congestion, longevity, scenic beauty)