Chapter 5: The Measurement of National Income

Question 1

methods for measuring national income (output)

Answer 1

ALL YIELD VALUE OF GDP
* total value added from domestic production
* total expenditures on domestic output
* total income generated by domestic production

national product = national output = national income

Question 2

stages of production

Answer 2

firms produce outputs that
are other firms’ inputs

think milk and ice cream

Question 3

firm’s contribution to total output

Answer 3

TOTAL VALUE ADDED IN THE ECONOMY EQUALS GDP (GROSS DOMESTIC PRODUCT)
* value added = revenues - non-labour costs
* value added = revenues – cost of intermediate goods
* value added= payments to factors of production

Summing value added avoids the problem of double counting