Circular Flow

Question 1

Define Double counting

Answer 1

When intermediate (unfinished) products are added to final products and cause an irregular incorrect amount.

Question 2

Intermediate good

Answer 2

Goods that are used to produce other goods and services.

Question 3

National accounts

Answer 3

The accounting records of a county’s total production, income and expenditure.

Question 4

Gross Domestic Expenditure
Formula & Definition

Answer 4

Total expenditure on final goods & services within a country.
Consumer spending+Investment+Gov. spending

Question 5

Nominal GDP

Answer 5

GDP @ current prices.
Includes the effect of inflation.

Question 6

Real GDP

Answer 6

GDP @ constant prices
The effect of inflation has been removed.

Question 7

Gross National Income

Answer 7

The measure of total remuneration/income earned for the factors of production in the production of goods+services.

Question 8

Gross & NET meaning

Answer 8

Gross: total
Net: excluding some amounts

Question 9

GD(I) Income

Answer 9

The total of all the incomes earned by the citizens of a country.

Question 10

GD(E) Expenditure

Answer 10

The total value of expenditure on final goods and services in a country.

Question 11

GD(P) production

Answer 11

The total value of goods and services produced in a country in a given time.

Question 12

Leakages:
Definition & examples.

Answer 12

Money exiting the flow in the economy.
Savings, imports, taxes.

Question 13

Injections:
Definition & examples.

Answer 13

The flow of money coming into the economy.
Imports, investments, government spending.

Question 14

Compensation of employees+Net operating surplus+Consumption of fixed capital =

Answer 14

GVA @ Factor cost
(Factor-factory)

Question 15

GVA @ basic prices consists of:

Answer 15

Taxes on production - subsidies on production.

Question 16

GDP @ market prices

Answer 16

Taxes on products - subsidies on products

Question 17

What is primary income to and from the rest of the world?

Answer 17

Exports and imports.

Question 18

What is fixed capital?

Answer 18

Investments

Question 19

Compensation of employees+Net operating surplus+consumption of fixed capital = ?

Answer 19

GVA @ Factor cost

Question 20

Taxes on production-subsidies on production = ?

Answer 20

GVA @ basic prices

Question 21

Taxes on products-subsidies on products = ?

Answer 21

GDP @ market prices

Question 22

Primary income from the rest of the world - Primary consumption to the rest of the world = ?

Answer 22

GNI (Gross National Income) & market price

Question 23

Gross National Income @ market price consists of ?

Answer 23

GDP @ Market price + primary income from the rest of the world - primary income to the rest of the world.

Question 24

Define GNP:

Answer 24

The final value of goods and services produced by permanent citizens of a country.

Question 25

Residual item:

Answer 25

Involves a balancing error or unexpected item.

Question 26

Which is the more accurate values to look at between Nominal GDP & Real GDP?

Answer 26

Real GDP. It excludes inflation.
Inflation over years is not an accurate representation of economic activity.

Question 27

What is a base year?

Answer 27

The year with which the values from other years are compared.

Question 28

How is an increase in economic activity measured?

Answer 28

Real GDP - it indicates the increase in the quantity of goods produced.
Increase in production of products indicates economic growth.

Question 29

How do you convert Nominal GDP to Real GDP?

Answer 29

Real GDP/deflator x 100

Question 30

How do you calculate Real GDP?

Answer 30

Nominal GDP / deflator x 100

Question 31

How do