3.1 - measuring economic activity and illustrating its variations

Question 1

National income

Answer 1

• value of goods/ services produced by a country during a financial year
• measure of total economic activity

Question 2

Gross domestic product (GDP)

Answer 2

• stats of national income
• total monetary value of final goods/ services produced within a country’s borders (economy) in a specific time period

Question 3

Gross national product (GNP)

Answer 3

• value of all final goods/ services owned by a country’s citizen over a period of time
• Similar to GNI but It also adds subsidies and taxes from foreign sources

Question 4

Green GDP

Answer 4

GDP that accounts for loss of biodiversity & costs caused by climate change

Question 5

Income method

Answer 5

All income from factors of production/ factor payments

• calculate NI = W + R + I + PI + CP
• calculate GDP = NI + indirect business taxes + depreciation + NFFI (net foreign factor income)

Question 6

output method

Answer 6

• total volume of production from firms
  (firms are surveyed for their output)

Question 7

cons of income method

Answer 7

• only effective if economic activity is registered
• countries with high levels of corruption difficult to measure GDP —> illegal drugs + legal babysitting
• unreported economic activity –> people who lack birth certificate, social security…

Question 8

expenditure method

Answer 8

• total spending—> adding up sales receipts of goods/ services + government spending, investments, net exports
• GDP = C + I + G + (X-M)

Question 9

how real GDP growth contributes to an improved standard of living

Answer 9

• more economic output (production of goods and services)
• job opportunities
• improved wages
• more to invest on infrastructure
• consumer confidence
• less poverty!

Question 10

factors of production

Answer 10

land, labour, capital, entrepreneurship

Question 11

factor payments

Answer 11

• payments made to factors of production to produce goods/ services

wages, rent, interest, profit, dividend

Question 12

GNI

Answer 12

GDP, but factors in citizens earning income from abroad

GDP + net income from abroad —-> incomes flowing in- incomes flowing out

Question 13

real GNI per capita

Answer 13

income per person in the country

Question 14

Purchasing power parity (PPP)

Answer 14

• the size of an economy by its power to purchase goods and services within that country
• • refers to measuring the prices for goods and services in different locations

Question 15

National income accounting by governments can be made by adding up all the income categories (rent, wages, interest and profits), the added value of every output category (from primary , secondary and tertiary industries) or expenditure categories in an economy. In other words:

Income = Output = Expenditure

Question 16

happy life index

Answer 16

• uses 4 indicators to show efficiency of economic resources among residents
• takes ecological footprint into account

Question 17

recession

Answer 17

A decrease in GD, fall in economic output occurring for longer than two quarters.

Question 18

decrease in GDP vs decrease in GDP growth rate

Answer 18

• decrease in GDP = fall in economic output (recession if longer than 2 quarters)
• decrease in GDP GROWTH RATE: increase in GDP but at a slower rate than previous quarters

Question 19

pros of GDP as a measure of growth

Answer 19

• comparison w/ other countries
• insight to average income

Question 20

cons of GDP as a measure of growth

Answer 20

• overestimates quality of life
• cannot tell you about income distribution
• inaccuracies
• doesn’t account for improvements in quality of output
• GDP ONLY MEASURES OUTPUT…

Question 21

why might GNI be higher or lower in some countries

Answer 21

GNI in a country might be higher than the GDP of a country if they receive a large amount of
foreign aid
 The GNI in a country might be lower than the GDP of a country if foreigners control a large
amount of a country’s production

Question 22

business cycle

Answer 22

• fluctuations of real output as it trends upwards over time