Macroeconomics Accounts

Question 1

What are the problems with GDP?

Answer 1

1. Dishonest firms “underground economy”
2. Released on a delay, so GDP figures are estimates
3. These estimates are used to make fiscal/economic policies and they are very inaccurate.
4. Get a better picture of average economy performance using GDP growth rates than levels

Question 2

GDP levels problems: Extended

Answer 2

• GDP is a measure of income not wealth
• Informal economy, trade of food etc undervalued in developing countries.
• GDP is in local currency then converted but forgets about differences in local costs.

Question 3

What is the circular flow equation?

Answer 3

Y=C+I+G+X-Z

Question 4

How many leakages/injections are there and what are they?

Answer 4

4 leakages: consumption, imports, gvt spending and investment

4 injections: consumption, savings, exports and tax revenuess

Question 5

Explain the private and government sectors interpretation

Answer 5

If savings is greater than investment then the private sector is a net saver.
If savings is less than investment then the private sector is a net borrower.

If the government expenditure is greater than the tax revenue then the government is in a deficit.
If the government expenditure is less than the tax revenue then the government is in a surplus

Question 6

What are the components of the Current Account

Answer 6

Goods and Services
A1 - Goods. Intermediate goods, repairs, non monetary gold etc.
A2 - Services. Invisibles such as transport and travel, communications, insurance etc.

International Income
B1 - Wage & Income. Wages paid for by individuals in countries diff from their place of residence.
B2 - Investment. Profits/interest received by residents less P&I paid to foreign residents.

Current Transfers
Payments made which aren’t associated with commercial or financial…..remittance.

Question 7

What are the three measures of GDP?

Answer 7

1. Final Sales
2. Value Added
3. Income Added

Question 8

Interpret the CA

Answer 8

Y=GNI
CA=Y-(C+I+G)=Y-A

Y-A>0, then a country is a net lender

Y-A

Question 9

What are the components of the Capital Account?

Answer 9

Capital Account
- Registers unusual financial transfers such as debt forgiveness.

Financial Account
B1 - Direct investment >10%. B2 - Portfolio investment