3) Measuring The National Income

Question 0

What are the 3 ways the value of what the country produces in a year is calculated

Answer 0

⚫️Output method
➡️adding up value
➡️of good and services
➡️produced in the economy

⚫️Income method
➡️measures value of all income
➡️earned in the economy

⚫️Expenditure method
➡️measures value of spending
➡️goods and services in the economy

Question 1

What does GDP mean

Answer 1

⚫️total value
➡️of goods and services produced
➡️in the economy
➡️in a year

Question 2

When we calculate GDP, what is the value which we will get?

Answer 2

Nominal GDP

Question 3

What does nominal GDP mean

Answer 3

⚫️total value 
➡️of goods and services 
➡️produced in the economy 
➡️in a year 
➡️at 'current prices'

Question 4

What does real GDP mean

Answer 4

⚫️total value 
➡️of goods and services 
➡️produces in the economy 
➡️in a year
➡️minus the rate of inflation

Question 5

Why do we have to take out the effects of inflation

Answer 5

⚫️get realistic understanding
➡️value of output
➡️over the year

⚫️nominal GDP 
➡️may rise 
➡️because products are being sold 
➡️at higher price
➡️not because 
➡️more products are being produced

⚫️so no increase
➡️in output of economy

Question 6

What are the limitations of the national income/GDP data

Answer 6

⚫️inaccuracies

⚫️unrecorded or under-recored economic activity

⚫️shadow market activity not recorded

⚫️info about living standard are limited

Question 7

Why are inaccuracies a limitation of national income/GDP data

Answer 7

⚫️data
➡️from range of source
➡️can be unreliable

⚫️takes time
➡️to be analysed
➡️by government statistician

⚫️difficult for LEDS
➡️poor infrastructure
➡️weak government institution

Question 8

Why are unrecorded or under-recorded economic activity a limitation of national income/GDP data

Answer 8

⚫️fixing things yourself
➡️rather than calling the plumber
➡️not recorded

⚫️looking after children yourself
➡️rather than calling the nanny
➡️not recorded

⚫️farmers from LEDCS country
➡️consume what they grow
➡️or trade informally with neighbours
➡️not recorded

Question 9

Why are shadow market a limitation of national income/GDP data

Answer 9

⚫️drug trafficking

⚫️prostitution

⚫️work done by illegal immigrants

⚫️uk spends
➡️12.3 billion
➡️on drugs and prostitution per year
➡️not recorded

Question 10

Why is information about living standards a limitation of national income/real GDP

Answer 10

⚫️Doesn’t give info about
➡️life expectancy
➡️literacy rates
➡️primary school enrolments

⚫️these are provided by HDI