CH 7: Measuring a nation's income

Question 1

Define GDP

Answer 1

• The total market value of all final G/S produced in a country in a given time period.
• All items produced in an economy and sold legally in markets.

Question 2

What does GDP exclude?

Answer 2

• Items produced/consumed at home that don’t enter the marketplace.
• Items produced and sold illegally (black market).
• G/S produced in other countries. Does count if foreigners produced it in NZ.
• Income earned by NZ citizen overseas.

Question 3

Formula for GDP and GNDP?

Answer 3

GDP = Y = C + I + G + NX
GNDP = Y + NFI

Question 4

Nominal vs Real GDP?

Answer 4

Nominal = current prices
Real = constant prices

Question 5

Define GDP Deflator

Answer 5

Shows how much a rise in nominal GDP is because of a price change rather than quantity change.

GDP Deflator = (Nominal GDP / Real GDP) x 1000.

Question 6

While GDP measures Standard of Living, what are weaknesses?

Answer 6

• Does not measure happiness or QoL.

- Leisure, clean environment, activities outside of markets.