COMPONENT OF GROSS DOMESTIC PRODUCT

Question 1

What is Personal Consumption Expenditure (PCE)?

Answer 1

The spending of households on goods and services. It is the largest part of GDP

Question 2

What are the three main types of consumption expenditure?

Answer 2

Durable goods, nondurable goods, and services

Question 3

Give examples of consumer durable goods.

Answer 3

Automobiles, furniture, household appliances. Note: New houses are considered part of investment, not consumer durables.

Question 4

Give examples of consumer nondurable goods.

Answer 4

Food and clothing

Question 5

Give examples of services within Personal Consumption Expenditure.

Answer 5

lawyers, doctors, financial and educational services, haircuts. These do not involve the production of physical items.

Question 6

What does Personal Consumption Expenditure measure?

Answer 6

Price changes in consumer goods and services.

Question 7

What is Household Final Consumption Expenditure (HFCE)?

Answer 7

A transaction of the national account’s use of income account representing consumer spending. It includes spending by resident households on individual consumption goods and services.

Question 8

Who is included in the household sector for HFCE?

Answer 8

Those living in traditional households and those living in communal establishments such as retirement homes, boarding houses, and prisons.

Question 9

How is HFCE measured?

Answer 9

At purchasers’ prices, which include non-deductible value added tax and other taxes on products, transport and marketing costs, and tips.

Question 10

How does PCE relate to inflation measurement?

Answer 10

PCE measures inflation by tracking changes in prices. Unlike the Consumer Price Index (CPI), the PCE changes along with consumer spending habits

Question 11

What is Gross Private Domestic Investment?

Answer 11

Measures investment used to calculate GDP; indicates future productive capacity. Includes replacement purchases, net additions to capital assets, and investments in inventories. Expenditures on capital goods for productive activities in the domestic economy undertaken by the business sector.

Question 12

What are the three types of investment included in Gross Private Domestic Investment?

Answer 12

Non-residential investment (firms’ expenditures on capital like tools, machinery, and factories), residential investment (expenditures on residential structures/equipment owned by landlords), and change in inventories (change of firm inventories in a period).

Question 13

What does “gross” mean in Gross Private Domestic Investment?

Answer 13

Includes the production of all capital goods, including those used to replace depreciated capital. Subtracting capital depreciation from gross private domestic investment results in net private domestic investment.

Question 14

What does “private” mean in Gross Private Domestic Investment?

Answer 14

Measures investment expenditures made by the private sector. Capital goods purchased by the public/government are included in government consumption expenditures and gross investment.

Question 15

What does “domestic” mean in Gross Private Domestic Investment?

Answer 15

Expenditures on capital goods used in the domestic economy.

Question 16

How is Gross Private Domestic Investment calculated within GDP?

Answer 16

GDP equals consumer spending plus investment plus government spending plus exports minus imports.

Question 17

What are the steps to calculate Gross Private Domestic Investment?

Answer 17

Calculate the change in the value of business inventories
.
◦
Determine the value of new real estate construction
.
◦
Add up the value of all capital items businesses purchase
.
◦
Total the three figures
.

Question 18

What is the meaning of Net Exports?

Answer 18

Exports minus imports. The difference between exports and imports.

Question 19

How are exports defined?

Answer 19

Domestically produced final goods and services that are sold abroad.

Question 20

How are imports defined?

Answer 20

Purchases by domestic buyers of goods and services that were produced abroad

Question 21

How is Net Exports measured?

Answer 21

Value of Exports - Value of Imports

Question 22

What does a positive balance of trade indicate?

Answer 22

The value of goods exported is higher than the value of goods imported.

Question 23

What does a negative net export indicate?

Answer 23

A country is importing more than it exports. Can indicate a decrease in equilibrium GDP

Question 24

What percentage of GDP does Gross Private Domestic Investment typically represent?

Answer 24

Averages between 12-18 percent of gross domestic product.

Question 25

What percentage of GDP do net exports account for?

Answer 25

About 13% of the GDP

Question 26

let's suppose Nigeria purchased N3 billion of gasoline from other countries last year, but it also sold N7 billion of gasoline to other countries last year. Calculate Nigeria's net gasoline exports

Answer 26

Net Exports = N7 billion - N3 billion = N4 billion

Question 27

Factors affecting net exports include;

Answer 27

prosperity abroad, tariffs and exchange rates.

Question 28

What is Government Consumption Expenditure (GCE)?

Answer 28

GCE is government expenditure on goods and services for individual or collective needs.

Question 29

What does GCE consist of?

Answer 29

: The value of goods and services produced by the government (excluding own-account capital formation and sales) and government purchases of goods and services from market producers supplied to households as social transfers in kind.

Question 30

What is included in government consumption expenditures in GDP?

Answer 30

Spending on the government workforce and on goods and services like fuel for military jets and rent for government buildings.

Question 31

What does gross investment include for the government?

Answer 31

Spending on structures, equipment, and software, such as new highways, schools, and computers.

Question 32

What is measured by government current expenditures?

Answer 32

All spending by government on current-period activities, including government consumption expenditures, current transfer payments, interest payments, and subsidies.

Question 33

Why are transfer and interest payments excluded from GDP calculations?

Answer 33

Because these payments do not represent purchases of goods and services.

Question 34

What does total government expenditures include?

Answer 34

Current expenditures, gross investment, other capital-type expenditures (like capital transfer payments), and net purchases of non-produced assets (e.g., land

Question 35

What is gross investment?

Answer 35

The value of investment in buildings, machinery etc. before accounting for depreciation. In economics, it is the accumulation of newly produced physical entities, such as factories, machinery, houses and goods inventories

Question 36

How do governments contribute to economic output?

Answer 36

By providing services to the public and investing in capital.

Question 37

How do governments affect the economy?

Answer 37

Through taxes, incentives for business activities, and their collective saving (revenue minus spending) .

Question 38

the amount a company invests in business assets that does not account for any depreciation is known as------

Answer 38

Gross Investment