A Calculate and explain GDP as expenditure and income, B, C

Question 1

GDP

Answer 1

The total market value of all goods and services produced in a country within a certain time period. Includes only new product and service purchases.

Goods and services are valued at market value of final goods and services

Government goods and services are valued at their cost to the government.

Question 2

Total expenditures should = total income

Answer 2

Total expenditures approach; value of final output method; Nominal GDP: Sum of amounts spent on goods and services produced during the period

Income approach: Sum of amounts earned by households and companies during the period; (wage income, interest income, business profits)

Question 3

Sum of Value Added Method

Answer 3

Sum value created at each stage of production and distribution ; value added

Question 4

Nominal and Real GDP

Answer 4

GDP under expenditures approach: Total value of all goods and services produced by an economy valued at current market prices

Nominal GDP is based on current market prices, so Inflation WILL increase nominal GDP

Real GDP: Measures growth reflecting only increases in total output using prices from a bse year, removing the effect of changes in prices so that inflation is not counted as economic growth.

Question 5

GDP Deflator

Answer 5

GDP is a price index that can be used to convert y to Y,taking out the effects of changes in the overall price level. GDP deflator is based on the actual mix of goods and services produced in the base period.

GDP deflator = y in t / value of t output at year t - Y prices