Chap. 2 - National lncome Accounting Flashcards

1
Q

What is National Income Accounting?

A

The methodology used in measuring the total output and income of the economy.

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2
Q

What is GDP?

A

The Gross Domestic Product (GDP) is the value of all the final goods and services produced in the domestic economy in a given year.

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3
Q

What are the two different ways to calculate GDP?

A
  1. By adding up all that is spent to buy this year’s output (the expenditures approach)
  2. By summing up all the incomes derived from the production of this year’s output (the income approach)
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4
Q

What are the four possible uses for the output of an economy in a given year?

A

Output in an economy can be purchase by private households (C), businesses (I), government (G), or the foreign sector (NX).
Y = C + I + G + NX

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5
Q

What is C?

A

The total payment made by households on consumption goods and services is called consumption expenditures

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6
Q

What is I?

A

The purchase of new plants, equipment, buildings, new homes, and additions to inventories is called investment expenditures

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7
Q

What is G?

A

Government purchases of finished products of businesses and all direct purchases of resources are called government expenditures

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8
Q

What is NX?

A

The expenditure by the rest of the world on goods and services produced by domestic firms (exports) minus the US expenditures on goods and services produced by the rest of the world (imports) is called net exports

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9
Q
Personal Consumption	3,657
Depreciation	400
Wages	3,254
Indirect Business Taxes	500
Interest	530
Domestic Investment	741
Government Expenditures	1,098
Rental Income	17
Corporate Profits	341
Exports	673
Net Foreign Factor Income	20
Proprietor’s Income	403
Imports	704
Calculate GDP
A
Y = C + I + G + NX
Y = 3,657 + 741 + 1,098 + (673 – 704)
Y = 3,657 + 741 + 1,098 – 31
Y = 5,465
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10
Q

The Income Approach, National Income is comprised of what five factors?

A

Wages, Rent, Interest, Proprietor’s Income, and Corporate Profits

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11
Q

To go from National Income to GDP what must be considered?

A

To go from National Income to GDP you must add in the value of production that is never received as income by a factor of production. This is done by adding Indirect Business Taxes (sometimes called sales taxes), Depreciation (the value of the capital that is used up by producing the output of the economy), and Net Foreign Factor Income (NFFI) to National Income.

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12
Q

The final Income Approach to the GDP is what equation?

A

Y = National Income + Indirect Business Taxes + Depreciation + NFFI

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13
Q
Personal Consumption	3,657
Depreciation	400
Wages	3,254
Indirect Business Taxes	500
Interest	530
Domestic Investment	741
Government Expenditures	1,098
Rental Income	17
Corporate Profits	341
Exports	673
Net Foreign Factor Income	20
Proprietor’s Income	403
Imports	704
Calculate National Income, then GDP using the Income Approach
A

National Income = Compensation to Employees (Wages) + Rents + Interest + Proprietor’s Income + Corporate Profits
National Income = 3,254 + 17 + 530 + 403 + 341 = 4,545
Y = National Income + Indirect Business Taxes + Depreciation + NFFI
Y = 4,545 + 500 + 400 + 20 = 5,465

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14
Q

What are the three ways GDP can rise?

A

GDP can rise from one year to the next for one of three reasons: either because the economy has produced more from one year to the next, because the value of the product has gone up from year to year, or both.

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15
Q

What is Nominal GDP?

A

Nominal GDP measures the value of the output of final goods and services using current dollar prices. It is the value of a given year’s output using the dollar prices that prevailed in that given year (referred to as current dollar prices).

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16
Q

What is Real GDP?

A

Real GDP measures the value of the output of final goods and services using constant dollar prices. It is the value of a given year’s output using the dollar prices that prevailed in a previous year, called the base year (referred to as constant dollar prices).

17
Q

What is the GDP Deflator used for and what is the equation?

A

The Deflator tells us what the inflation has been over a period of time.
GDP Deflator = (Nominal GDP/Real GDP) X 100