B5 - Economic Concepts

Question 1

How is GDP calculated under the expenditure approach?

Answer 1

Under the expenditure approach, GCP is calculated by summing total expenditures in the domestic economy.
GDP is calculated as:

Government purchases of goods and services + Gross private domestic investment + Personal _c_onsumption expenditures + Net _e_xports (exports minus imports)

Question 2

How is GDP calculated under the income approach?

I PIRATED

Answer 2

Under the income approach, GDP is calculated by summing the value of resource costs and incomes generated during the measurement period. GDP is calculated as:

Income of proprietors + _P_rofits of corporations + _I_nterest (net) + Rental income + _A_djustments for net foreign income + _T_axes (indirect business taxes) + _E_mployee compensation (wages) + _D_epreciation (capital consumption allowance)

Question 3

What are the causes of deand-pull inflation and cost-push inflation?

Answer 3

Demand-pull inflation is caused by increases in aggregate demand. Thus, demand-pull inflation could be caused by factors such as increases in government spending, decreases in taxes, increases in wealth, increases in consumer confidence, and increases in the money supply.

Cost-push inflation is caused by reductions in short-run aggregate supply. Thus, cost-push inflation could be caused by factors such as an increase in oil prices and an increase in nominal wages.

Question 4

What is the difference between nominal GDP and real GDP?