5.1 National Output and Value Added Flashcards
What is the name for the error that would arise in estimating the nation’s output by adding all sales of all firms? How could, in principle, we solve this problem?
The error that would arise in estimating the nation’s output by adding all sales of all firms is called double counting. “Multiple counting” would actually be a better term, because if we added up the values of all sales, the same output would be counted every time that it was sold by one firm to another.
The problem of double counting could in principle be solved by distinguishing between two types of output.
What is an intermediate good?
Intermediate goods
All outputs that are used as inputs by other producers in a further stage of production.
What is a Final good?
Final goods
Goods that are not used as inputs by other firms but are produced to be sold for consumption, investment, government, or export during the period under consideration.
What is Value added?
Value added
The value of a firm’s output minus the value of the inputs that it purchases from other firms.
Formula for Value added
Valueadded=Salesrevenue−Costofintermediategoods
Valueadded=Paymentsowedtothefirm’sfactorsofproduction
How would you calculate the overestamation between the sum of sales and the true value, in percentage.
What are the 4 broad catagories of expenditure and what does it look like as an equation?
What are the three components of measuring GDP from the income side?
- Wadges and salaries
- Business profits
- Interest
Would expenditure on an automobile by a firm be consumption or investment?
Investment
Expenditures by Canadian-owned insurence companies located in the United States on new are
Included in US GPA as Investment expenditure.
Are purchases of second hand cars included in expenditure? Why?
Purchases of second-hand cars are excluded because they were counted in the prior year(s) when they were produced.
What kind of relationship is there in the equation for GDP expenditure side between the two sides of the equation?
This equation is an example of bi-directional causation. Let’s consider causation between investment and GDP. Increase in income provides incentive for more savings and in turn more investment, thus GDP causing investment. On the other hand, more investment provides more production capacity, more opportunities for jobs and higher wages resulting in higher income, so investment causing GDP.
Where do we add depreciation in the GDP expenditure function? Is it added or subtracted?
It is added to the Investment componenet. It is added and not subtracted
What factors would we include in calculating GDP from the income side?
What factors do we add together to get net domestic income at factor costs?
How would we calculate with the income approach?
