2. Measuring GDP & Economic Growth [D]

Question 1

Define GDP ?

Answer 1

GPD or gross domestic product is the market value of all final goods and services produced within a country in a given time peroid.

Question 2

1. Market value ?

Answer 2

Market value are g/s are valued at their market prices.

Question 3

2. Final goods and services ?

Answer 3

A final g/s is an item bought by its final user during a specified time period.

or is produced by one firm and brought by another.

Question 4

3. Produced within a country ?

Answer 4

GDP measures production within a country - domestic production.

Question 5

4. In a given time period ?

Answer 5

4. GDP measures production during a specific time period, normally a year or a quarter of a year.

Question 6

GDP & the circular flow of expenditure and income ?

Answer 6

GDP measures the value of production which also equals total expenditure [TE] on final goods and total income [Y]

Question 7

Households and firms ?

Answer 7

Household sell and firms buy the services of labour, capital and land or the gift of nature in factor market.
wages [w]
interest [i]
rent [r]
entrepreneurship, has the idea, takes risk.

Question 8

Consumption expenditure ?

Answer 8

Consumption expenditure [ C ] is the total payments for consumer g/s bought by households.

Question 9

Government ?

Answer 9

Government buy g/s from firms and their expenditure on g/s is called government expenditure [ G ]

Question 10

Rest of the world ?

Formula for net exports ?

Answer 10

firms sell g/s

• Exports [ X ]
• Imports [ M ]

Formula = The value of exports [ X ] minus the value of imports [ M ] is called net exports [ X - M ]

Question 11

Formula for net profit ?

Answer 11

Aggregate income [ Y ] = GDP = Aggregate expenditure [ AE or TE ]

Question 12

The circular flow measured in 2 ways ?

Answer 12

i ] Aggregate expenditure [ AE = TE ]

ii ] Aggregate income [ Y ]

Question 13

Aggregate expenditure ?

+ Formula

Answer 13

Aggregate expenditure ( AE = TE )
- total expenditure on final g/s, equals the value of output of final g/s, which is GDP.

Formula =
Total expenditure = C + I + G + ( X - M )

Question 14

Aggregate income ?

+ Formula ?

Answer 14

Aggregate income ( Y )
Total income equals the total amount paid for the use of factors of production 
= wages + interest + rent + profit

Formula =
Y = GDP = C + I + G + [ X - M ]

Question 15

Taxes, market price and Factor cost ?

+ Formula ?

Answer 15

these items are not expenditure on g/s nor are they incomes for the factors of productions, so they are not part of the circular flow of expenditure and income.

Formula =
AX = Y + indirect taxes - subsidies

Question 16

Definition of :
A] Gross
B] Net
C] Depreciation

Answer 16

A ] Gross = before deducting the depreciations of capital.
B ] Net = after deducting the depreciation of capital.
C ] Depreciation = is the decrease in the value of a firms capital that results from wear, tear & obsolescence.

Question 17

Definition of :
D ] Gross investment
E ] Net investment
+ Formula

Answer 17

D ] Gross investment = is the total amount spend on purchases of new capital and on replacing depreciated capital.
E ] Net investment = is the increase in the value of the firms capital.

Formula =
Net investment = Gross investment - depreciation.

Question 18

Definition of :
F ] Gross profit
G ] Gross investment

Answer 18

F ] Gross profit = a firms profit before subtracting depreciation is one of the income included in the income approach to measure GDP.
G ] Gross investment = is one of the expenditures included in the expenditure approach to measuring GDP.