Ch.15 GDP

Question 1

What is GDP?

Answer 1

It is the total value of final goods and services produced by the resident producing unit of an economy in a specific period of time.

Question 2

What are the items excluded in national income calculation?

Answer 2

1. Capital gain - increase in the value of asset.
2. Second hand goods - Resale of existing second hand goods are not currently produced, Their values have been counted as national income in the past.
3. Past inventories - Current production is not involved.
4. Non-marketed goods and services. - Without market transaction with no official record
5. Transfer payment - E.g. CSSA, Transport subsidy.
6. Unreported transaction/ illegal transactions
7. Contaminated goods.
8. Transaction of financial assets- share, bonds and loans - commission and transaction levies involved in the transaction of financial asset are counted.
9. Intermediate products.
   CSP NTU CTI

Question 3

What are the DSE traps for including XX as GDP?

Answer 3

1. Employee benefits especially civil servants are included ( housing allowance, medical benefits) -> return of factors of production
2. Estimated rental value is included (owner occupied)
3. Interest from bonds or dividend from shares are included.

Question 4

What is RPU?

Answer 4

The production unit that maintains a center of economic interest in the economy.

Question 5

What is expenditure approach?

Answer 5

Measures the total spending of individuals, firms, government and foreigners.

Question 6

What is included in I (Gross Investment Expenditure)

Answer 6

Expenditure on fixed capital (building, construction, infrastructure, machine, equipment)
Expenditure on transferring ownership (stamp duties, legal fees)

Question 7

What does Government Consumption Expenditure include?

Answer 7

1. Salaries, Pensions and housing benefits for civil servants.
2. Expenditures on providing entertainment to the public.
3. However, Government’s investment expenditure should be counted as I. E.g. Railways, roads etc

Question 8

What are the DSE traps for export?

Answer 8

1. Total exports include export of goods - re-export of goods and export of services.
2. However, export of goods do not count export of services, need to add back.
3. Tourists travelling expenditure is included in export.

Question 9

What does Import include

Answer 9

Import of goods and services.
Locals buy foreign products are also import.

Question 10

Concept check for GDP expenditure approach. Can GDP and increase in inventory be negative ?

Answer 10

1. GDP cannot be negative. There is no negative production.
2. Yes. It can be calculated.

Question 11

Conversion of GDP in factor cost to market price

Answer 11

Factor cost + indirect tax - subsidy = Market Price.