NIS

Question 1

What is GDP?

Answer 1

The total output produced in a country in a given time period, it can be calculated through three ways, output method, income method and expenditure method.

Question 2

How to calculate GDP using output method and what are the problems?

Answer 2

Method:
sum of all value-added output generated from main economic sector within the country
- value-added output=sales revenue received-costs of production

Problems:
- double-counting, inflates GDP by…

Question 3

How to calculate GDP using expenditure method and what are the problems?

Answer 3

Total spending on domestic goods and services in a given period of time at a given price level, calculated using components of AD…(define each component)

Problems:

1. value of imports may be inaccurate due to currency fluctuation
2. I should be new capital formation (not replacement)
3. G should exclude transfer payment

Question 4

How to calculate GDP using income method and what are the problems?

Answer 4

Sums up all factor income earned within the country, such as wages, interest, profit and dividend, these are the payments received in return for providing a good or a service

Problems:
- should exclude transfer payment, because the receivers do not perform production

Question 5

What is GNP? (GNI)

What is net property income?

Answer 5

total output produced by the country’s population
GDP + net property income from abroad

net property income = income earned by domestic residents and businesses from overseas investment - income earned by foreign residents and businesses from domestic investment
—> foreign income must be REMITTED + tax - subsidies

OR
income spent by foreigners-foreign income not remitted by citizens

Question 6

What is the difference between real and nominal GDP?

Answer 6

Nominal GDP: total output measured in current prices

Real GDP: total output measured in constant prices

Question 7

GDP at market prices VS net national income at factor cost

Answer 7

NNI = GDP - depreciation

1. To convert to factor costs, which only consider the costs of production in producing the output, such as wages, interests… tax needs to be deducted, since it increases the market price, and subsidies are added because…
2. NNI relates to all income generated by domestic citizens, as long as it is remitted back, GDP only measures output produced within the country
3. NNI indicates the type of economy, GNI&NNI > GDP, developed economy, larger oversea investment

Question 8

How to calculate real GDP?

Answer 8

(nominal GDP x price index in base year) / price index in current year

Question 9

How to calculate GDP deflator?

Answer 9

(nominal GDP/real GDP) x 100

Question 10

What is national income statistics?

Answer 10

Statistics over measures of the country’s output in a year, so govt can assess whether an economy meets its econ growth objectives

Question 11

Problems with NIS

Answer 11

1. Shadow economy, understates the true level of output
2. morally dubious spending
3. different costs of living between countries, PPP needed
4. ignores quality, welfare, externalities (but difficult to attach monetary value)
5. if not real GDP, does not account for inflation (also problematic since CPI might not be representative basket…)
6. does not show income inequality

Question 12

What is PPP?

Answer 12

Comparing international living standard by using an exchange rate based on the amount of each currency needed to purchase the same basket of goods and services

so a significant change in the market exchange rate does not alter the international purchasing power of currencies