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Macro Econ > Chapter 5 - The Measurement of National Income > Flashcards

Chapter 5 - The Measurement of National Income Flashcards

1
Q

What is called the error arising from estimating the country’s output by adding all sales from all firms

A

Double counting

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2
Q

A Canadian farmer pays ​$400 for seeds to grow organic​ beets, which she sells to a produce distributor for ​$1200. The distributor sells the beets to a restaurant for ​$1500​, who then sells ​$3000 worth of beet salads
What is the value added

A

$2,600

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3
Q

What is the difference between final and intermediate goods

A

Final goods are not used as inputs by other firms

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4
Q

What is value added definition?

A

The correct measure of each firm’s contribution to total output

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5
Q

How do you calculate the economy’s total output

A

By summing all the values added

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6
Q

What is the value added equation?

A

Value Added = Revenues - Cost of intermediate goods

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7
Q

In​ Shoetown, a rancher takes ​$80 worth of inputs and produces animal​ skins, which he sells to the tanner for ​$410. The tanner then sells leather to the shoemaker for ​$750​, and the shoemaker then sells ​$1,200 worth of shoes. The value added from these transactions is

A

$1,120

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8
Q

What are the 3 different ways to measure national income

A
  1. The concept of value added.
  2. Sum the total flow of expenditure on final domestic output.
  3. Sum the total flow of income generated by the flow of domestic production.
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9
Q

True or false?
The value calculated with GDP from the expenditure side is equal to the value calculated with GDP from the income side.

A

True

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10
Q

What is the GDP equation?

A

GDP=C_a+ I_a+ G_a+ 〖NX〗_a

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11
Q

What are the 4 broad categories of expenditures?

be careful with one

A
  1. Consumption
  2. Investment
  3. Government Purchases
  4. Net exports
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12
Q

GDP from the income side, what are the 3 main components of factor income?

A
  1. Wages and salaries
  2. Business profits
  3. Interest
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13
Q

GDP from the income side, what are the non-factor payments?

A
  1. Indirect taxes less subsidies
  2. Depreciation
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14
Q

What type of expenditure is this:
Expenditure on all goods & services sold to their final users

A

Consumption

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15
Q

What type of expenditure is this:
Expenditure on goods not for present consumption

A

Investment

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16
Q

What type of expenditure is this:
All government purchases of goods & services are included as part of national expenditure

A

Government expenditure

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17
Q

Expenditures on automobiles are included in which category for consumers? For firms?

A

Consumer –> Consumption

Firms –> Investment

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18
Q

Purchases of​ second-hand appliances are included in which category

A

Not included

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19
Q

What is included in consumption expenditures (3 things)

A

Services
Non-durable goods
Durable goods

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20
Q

What is included in investment expenditures (3 things)

A

Inventories
Capital goods
Residential housing

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21
Q

What is the capital stock?

A

The economy’s total quantity of capital goods (also called plant & equipment)

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22
Q

What is fixed investment?

A

Adding to the existing stock of capital goods/creating new capital goods

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23
Q

What is the net investment equation ?

A

Net investment =
Gross investment - depreciation

24
Q

Government output is valued at cost or at market value?

A

At cost because with don’t know the market value of things like courts or police protection

25
Q

Only government purchases of ________ are included as part of GDP

A

Currently produced goods and services

e.g., Canada Pension Plan for retirees does not count

26
Q

GDP = Ca + Ia + Ga + (NX)a
is what type of causation?

A

Bi-directionnal
meaning an increase in one will lead to an increase in the other
(two things cause each other)

27
Q

Is it true that an increase in imports reduces GDP? Why?

A

No because a​ bi-directional causation between GDP and imports exists.

28
Q

What is the net domestic income formula?

A

Net domestic income =
Wages & Salaries + Interest + Business Profits

29
Q

What is the GDP from the income side formula?

A

GDP =
Factor incomes + Indirect taxes (less subsidies) + Depreciation

30
Q

What is statistical discrepancy?

A

“Fudge factor” to make sure that the independent measures of income and expenditures come to the same total. Clear indication that national income accounting is not error-free.

31
Q

Which of the following transactions would not be included in the calculation of GDP on the expenditure​ side?

A. The purchase of an Airplane by Air Canada.

B. The purchase of a new boat by a household.

C. The purchase of ground beef by McDonald’s.

D. The purchase of a plumber’s services by a household.

A

C. The purchase of ground beef by McDonald’s.

(not a final good)

32
Q

If nominal GDP increases over a time period, it is unclear how much the increase is due to what (2 things)

A

Increases in output
Increases in prices

33
Q

GDP / Total Population
gives us what?

A

A measure of
average material living standards

34
Q

If nominal GDP increases by 35 percent over a​ 10-year period, then it is unclear how much of this increase is due to increases in output and how much is due to increases in prices. To overcome this​ problem, we look at GDP valued at _____ prices and we refer to this measure as _____ national income.

A

constant

real

35
Q

What is the GDP deflator and what does it measure?

A

An index number
Its change measures the average change in price of all items in the GDP

36
Q

What is the GDP deflator equations (2)?

A

GDP deflator =
(GDP at current price / GDP at base period) * 100
=
(Nominal GDP / Real GDP) * 100

37
Q

True or false?
The GDP deflator changes in line with the CPI

A

False

CPI: Change in the average price of consumer goods
GDP defl: change in the average price of goods produced in Canada

38
Q

True or false?
If the country produces only consumer goods and does not engage in trade with other countries, GDP deflator and CPI would be the same?

A

True

39
Q

What does the HDI contains that isn’t part of GDP?

A

Non-economic factors
(life expectancy, educational attainment)

40
Q

The measures of real GDP growth​ (and growth in the​ deflator) depend on the choice of base year because of the different

A

relative prices in different years

41
Q

What are the 5 things omitted from GDP?

A
  1. Illegal activities
  2. Underground economy
  3. Home production, volunteering, and leisure
  4. Free products in the digital world
  5. Economic “bads”
42
Q

Paying a carpenter with cash so there is no transaction is an example of ?

A

The underground economy

43
Q

To what extent does GDP provide a useful measure of our living standards

A

Changes in real per capita (per person) income are a good measure of average material living standards.
But material living standards are only part of what most people consider their overall well-being.

44
Q

Which terms have approximately the same value when measuring macroeconomic activity

A

Production and income

45
Q

In the circular flow model, who supplies factors of production in exchange for income?

A

Households

46
Q

National income accounting focuses on the relationship between income and ______

A

real GDP in the short run

47
Q

What is the GNP (name and definition)

A

Gross National Product

The total dollar value of all goods and services produced by the citizens of a country

48
Q

What is the GDP per capita equation?

A

Real GDP / Population

49
Q

What is a function that the financial system provides for savers and borrowers?

A

Matching savers and borrowers

50
Q

What is the largest component of GDP from the expenditure side in Canada?

A

Consumption

51
Q

What is the largest component of GDP from the income side?

A

Wages, Salaries, and Supplementary Income

52
Q

How does the CPI differ from the GDP deflator?

A

The CPI includes goods produced in prior years, as well as imported goods, which the GDP deflator does not

53
Q

Which measure of GDP represents changes in the quantity of goods and services produced in the economy, holding prices constant?

A

Real GDP

54
Q

What are some earnings by factors of production (3)

A

Wages, tools, and​ equipment

55
Q

What is not subtracted when computing value added?

A

Earnings by factors of​ production, such as the wage to the​ apprentice, tools, and​ equipment, are not subtracted from the output when computing value added.

56
Q

Why is depreciation part of the GDP from the expenditure side?

A

Because it’s part of the investment category

Investment expenditure = NET private Investment + Depreciation

(Depreciation not included if it is written as investment expenditure)

57
Q

How to calculate the increase in nominal GDP that is due​ (in part) to an increase in quantities ?

A

(Real GDP year x - Real GDP year 0)
/
Real GDP year 0

Macro Econ (14 decks)

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