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ECON 209 > Ch.20 The measure of national income > Flashcards

Ch.20 The measure of national income Flashcards

1
Q

What are the 3 ways of measuring GDP?

A
  1. Value Added or “Product” Method
  2. Expenditure method
  3. income method
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2
Q

What is one issue of the value added method?

A

Double or multiple counting

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3
Q

When calculating National income using the production approach, the expenditure approach, and the income approach, what are the 2 components that need to be excluded in order for these method to yearn the same result?

A

Indirect taxes and depreciation of the capital stock

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4
Q

What is value added in production equal to?

A

Sales revenue (or total value of output) - cost of intermediate goods = payments owed to firm’s factors of production

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5
Q

Define Intermediate Goods

A

All G&S used as inputs into further stage of production

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6
Q

What are the four broad categories of Final expenditure method?

A
  1. Consumption
  2. Investment
  3. Government expenditures
  4. Net exports

These expenditures are needed to purchase the final output produced in that year.

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7
Q

What is included in the consumption category of the expenditure method?

A

Household expenditure on all G&S

  • Durable goods
  • Semi-durable goods
  • Non-durable goods
  • Services
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8
Q

What do the measure of GDP calculate?

A

The total value of G&S produced in the economy during a given period.

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9
Q

What is included in the investment category of the expenditure method?

A

Expenditure on the production of goods not for present consumption

  • Plant and Equipment
  • Residential structures
  • Inventories
  • Other
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10
Q

Define Capital Stock

A

The economy’s total quantity of capital goods

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11
Q

Define Fixed investment

A

The action of creating new capital goods

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12
Q

How do we calculate the total value at stock inventory?

A

of unit unsold x market price if I would sell

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13
Q

In what section would residential housing be in and why?

A

Investment (Y1) - Made for future use/profit.

In future year, if bought, not accounted into revenue (otherwise we double count) - It is only a transfer of value

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14
Q

What is gross investment?

A

The total investment that occurs in the economy at Year 1.

Net investment = gross investment - depreciation
If 0 = decreasing bc of depreciation
If negative = capital stock decreases
If positive = capital stock increases

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15
Q

What is included in the government purchases category of the expenditure method?

A

Expenditure on currently (in this year) produced G&S, exclusive of government transfer payments

  • Current expenditure (evaluated at cost value bc public goods) : PURCHASES, NOT TRANSFER (e.g., welfare, interest payment, etc)
  • Investment
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16
Q

What is included in the net exports category of the expenditure method?

A

Net exports = exports - imports

  • exports of g&s
  • imports of g&s (-)
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17
Q

What is the formula to calculate GDP from the expenditure side?

A

GDP = C + I + G + NX

18
Q

What does calculating GDP from the input side involve?

A

adding up all factor incomes and other claims on the value of output until all of that value is accounted for.

19
Q

What are the two categories of GDP calculation from income side? What are their main components?

A
  1. Factor incomes
    - wages and salaries
    - interest
    - business profits
  2. Non-factor payments
    - Indirect taxes
    - Subsidies
20
Q

What is included in wages and salaries in the income side method?

A

Income paid to factors of production (pre-tax)

21
Q

What is included in interest in the income side method?

A

Interest earned on

  • bank deposit
  • loans to firms
  • other investment

DOESN’T include interest on bonds from the government (inc. as transfer payment in govn’t expenditure)

22
Q

What is included in business profits in the income side method?

A

Dividends (paid to shareholders) and retained earnings (invested in the company for next year)

23
Q

What is the formula to calculate GDP from income side?

A

GDP = Factor incomes + Indirect taxes - subsidies + depreciation

24
Q

Define Depreciation

A

Loss in value of capital from wearing off

25
Q

What is “Statistical Discrepancy”?

A

It is a “fudge factor” that makes sure that the independent measures of income and expenditure come to the same total to correct slight error there might exist in practice

26
Q

Define Nominal GDP

A

Total GDP valued at current prices

27
Q

Define Real GDP

A

GDP valued at base-period prices

28
Q

What does the GDP deflator point at?

A

If there is differences between nominal and real GDP over a given time period, then prices must have changed over that period

29
Q

What is the GDP deflator formula?

A

GDP Deflator = (Nominal GDP/Real GDP)*100

<100 : Real GDP > Nominal GDP
>100 : Real GDP < Nominal GDP

30
Q

What is the difference between GDP Deflator and CPI (Consumer price index)?

A

Movements in CPI measure the change in the average price of consumer goods
Movements in GDP Deflator reflect the change in the average price of goods produced in Canada

31
Q

What component are omitted by GDP?

A
  1. Illegal activities
  2. The underground economy
  3. Home production, volunteering, and Leisure
  4. Economics “Bad”
32
Q

What are 3 leakages happening in the circular flow of expenditure and income?

A
  1. Tax deduction from salaries that goes to the government
  2. Savings (not spending everything)
  3. Buy G&S from outside the country (imports)
33
Q

What are 3 ways of bringing back the money from leakages into the cycle (injections)?

A
  1. Investment
  2. Government purchases
  3. Exports
34
Q

How to calculate Net domestic income at factor cost?

A

Wages & salary + interest + profits

35
Q

When measuring GDP through the expenditure approach, can investment be negative?

A

Yes

36
Q

Government purchases are calculated by their

A

COST

37
Q

Is pension included in measures of the govn’t expenditure component of aggregate expenditure? Why?

A

No - it is a transfer payment

38
Q

Is depreciation or replacement investment include in Gross domestic product?

A

Yes

39
Q

What is the formula to measure Labour productivity?

A

GDP/total number of hours worked

40
Q

What is the GNP formula?

A

GDP - net payments to foreigners

ECON 209 (3 decks)

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