MR01:Report Card

Question 1

What is economic growth measured by?

Answer 1

The change in Gross Domestic Product (GDP)

GDP is the total market value of final output of goods and services produced within a country in a given time period.

Question 2

What does the Circular Flow diagram illustrate?

Answer 2

The equality of income and expenditure

It shows how income flows between households and firms in an economy.

Question 3

What are the two sectors involved in the Circular Flow of Income Model?

Answer 3

Households and Firms

This model assumes all income received by households will be spent on consumption.

Question 4

In the 4-sector Circular Flow Model, what does Y stand for?

Answer 4

Total Income

Y = C + I + G + (X - M), where C is consumption, I is investment, G is government expenditure, X is exports, and M is imports.

Question 5

What are the three ways of calculating GDP?

Answer 5

• Output Approach
• Income Approach
• Expenditure Approach

All methods should sum up to the same GDP amount.

Question 6

What does the Output Approach measure?

Answer 6

The sum of value added in each industry sector

It reflects the total value of final goods and services produced.

Question 7

What factors are included in the Income Approach?

Answer 7

• Wages
• Rents
• Interest payments
• Profits

This approach sums the total income generated by production.

Question 8

What components are included in the Expenditure Approach?

Answer 8

• Consumption Expenditure (C)
• Investment Expenditure (I)
• Government Expenditure (G)
• Net Exports (X - M)

Net Exports is calculated as Exports minus Imports.

Question 9

What does Consumption consist of?

Answer 9

Household sector’s purchases of currently produced goods and services

This includes daily consumption items.

Question 10

What does Investment include?

Answer 10

• Business fixed investment
• Residential construction investment
• Inventory investment

Investment drives economic growth by increasing productive capacity.

Question 11

What does Government Expenditure refer to?

Answer 11

Government purchases of goods and services excluding transfer payments

This includes spending on infrastructure, education, and healthcare.

Question 12

What is the formula for GDP using the Expenditure Approach?

Answer 12

GDP = C + I + G + (X - M)

This formula aggregates all expenditures in the economy.

Question 13

What does Real GDP measure?

Answer 13

The actual increase in goods and services, adjusted for inflation

It provides a clearer picture of economic growth.

Question 14

What is Real GDP per capita?

Answer 14

Real GDP divided by the total population

It indicates living standards and economic well-being.

Question 15

What is Gross National Product (GNP)?

Answer 15

The total market value of final output of goods and services produced by the citizens of a country

GNP considers the income earned by residents regardless of where the production occurs.

Question 16

How is GNP calculated from GDP?

Answer 16

GNP = GDP + Net income inflow from abroad - Net income outflow to foreign countries

This formula adjusts GDP for income flows related to citizenship.

Question 17

True or False: GDP and GNP measure the same economic activity.

Answer 17

False

GDP measures output within a country, while GNP measures output by its citizens regardless of location.

Question 18

What does an increasing GDP trend indicate about an economy?

Answer 18

Positive economic growth

Sustained growth can transform an economy from poor to wealthy.

Question 19

What can cause a higher nominal GDP without indicating wealth per capita?

Answer 19

• Higher prices
• Increased population

These factors can inflate GDP figures without improving individual wealth.

Question 20

What does GDP stand for?

Answer 20

Gross Domestic Product

Question 21

What does GNP stand for?

Answer 21

Gross National Product

Question 22

What does GDP measure?

Answer 22

The total market value of final output of goods and services produced within a country in a given time period

Question 23

What does GNP measure?

Answer 23

The total market value of final output of goods and services produced by the citizens of a country

Question 24

How is GDP calculated?

Answer 24

By using the Output method, Income method, or Expenditure method

Question 25

How is GNP calculated?

Answer 25

GDP + Net income inflow from abroad - Net income outflow to foreign countries

Question 26

What does GDP indicate about a country's economy?

Answer 26

The strength of a country’s local economy

Question 27

What does GNP indicate about a country's economy?

Answer 27

How the citizens of a country are doing economically

Question 28

What is the definition of unemployment?

Answer 28

Non-availability of jobs for people who are able and willing to work

Question 29

What does a low unemployment rate signify?

Answer 29

Low Unemployment

Question 30

What is inflation?

Answer 30

A sustained and continuous increase in general price level in an economy over a period of time

Question 31

What economic performance indicator measures inflation?

Answer 31

Consumer Price Index (CPI)

Question 32

What does Balance of Payments measure?

Answer 32

Economic transactions between a country and the rest of the world

Question 33

What are the key accounts in the Balance of Payments?

Answer 33

* Current account * Capital account * Financial account

Question 34

Why is GDP considered an important indicator?

Answer 34

It is seen as a ‘report card’ for a country to judge government success in achieving macroeconomic objectives

Question 35

How does the government use GDP?

Answer 35

To guide its policy decisions

Question 36

What do businesses and economists use GDP for?

Answer 36

To forecast economic outlook and analyze business trends

Question 37

What does GDP serve as a basis for?

Answer 37

Evaluating the standard of living of a country and for comparison across countries

Question 38

What are some limitations of GDP as an indicator?

Answer 38

* Non-market production (e.g. home maker services) * Composition of output * Economic losses to production * Unreported income

Question 39

True or False: GDP includes illegal activities in its calculation.

Answer 39

False

Question 40

Fill in the blank: The economic performance indicator for economic growth is measured by the increase in _______.

Answer 40

Gross Domestic Product

Question 41

What is an Economic Performance Indicator?

Answer 41

A measure used to evaluate the economic performance of a country. ## Footnote Indicators include GDP, unemployment rate, inflation, and balance of payments.

Question 42

How is Economic Growth measured?

Answer 42

By the increase in Gross Domestic Product (GDP). ## Footnote GDP reflects the total value of all goods and services produced in a country.

Question 43

What does low unemployment indicate?

Answer 43

A situation where there are available jobs for people who are able and willing to work. ## Footnote The unemployment rate is a key indicator of economic health.

Question 44

Define Inflation.

Answer 44

A sustained and continuous increase in the general price level in an economy over a period of time. ## Footnote The Consumer Price Index (CPI) is commonly used to measure inflation.

Question 45

What does a healthy Balance of Payments indicate?

Answer 45

It measures economic transactions between a country and the rest of the world. ## Footnote It includes the current account, capital account, and financial account.

Question 46

Why is GDP considered an important indicator?

Answer 46

It serves as a 'report card' for a country to judge government success in achieving macroeconomic objectives. ## Footnote It reflects the economic 'health' of a country.

Question 47

List the uses of GDP by the government.

Answer 47

* To guide policy decisions * To evaluate the standard of living * For comparison across countries ## Footnote Businesses and economists also use GDP to forecast economic outlook.

Question 48

What are some limitations of GDP as an indicator?

Answer 48

* Non-market production (e.g., homemaker services) * Composition of output (e.g., military goods) * Economic losses to production (e.g., acid rain) * Unreported income (e.g., underground economy) * Distribution of real income and quality of life factors ## Footnote GDP does not capture all economic activities or their impacts on society.

Question 49

What is the unemployment rate?

Answer 49

The percentage of the labor force that is unemployed and actively seeking employment. ## Footnote It is a key indicator of economic performance.

Question 50

What does the Consumer Price Index (CPI) measure?

Answer 50

The average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. ## Footnote CPI is a principal measure of inflation.

Question 51

Fill in the blank: The balance of payments includes the _______ account and the _______ account.

Answer 51

current; capital and financial ## Footnote These accounts track all monetary transactions between a country and the rest of the world.

Question 52

True or False: GDP accounts for all economic activities, including illegal ones.

Answer 52

False ## Footnote Illegal activities like loan-sharking and gambling are typically not included in GDP calculations.