GDP and the measurement of progress

Question 1

what is GDP

Answer 1

GDP is the market value of finished goods and services produced in an economy in a given year.

Question 2

What are the four ways you can calculate GDP?

Answer 2

1) (P1 x Q1) + (P2 x Q2) + (P3 x Q3)……….
2) factor income approach = interest + rent + wages/salaries + profit
3) national expenditure approach = C + I +G + X -M
4) revenue - cost of production

Question 3

what is the difference between real and nominal variables?

Answer 3

Real variables are ones that are adjusted to change in value or money or currency over time and nominal values stay the same so nominal value of a car in 2010 is 2000 but in 2015 it will still be 2000 but the real variable can be 2500 if appreciation and 1500 if depreciation.

Question 4

What is a GDP Deflator?

Answer 4

A GDP Delflator measures the changes in prices of goods and services included in the GDP over time .
GDP Deflator = nominal GDP/Real GDP x 100

Question 5

What is the formula for calculating chained index?

Answer 5

Chained Index: RGDP = NGDP/ GDP deflator * 100

Question 6

What is GNP?

Answer 6

Gross National Product is the market value of final goods and services produced by a country’s residents no matter where they are located.
GNP = GDP + net income earned abroad

Question 7

What are the problems with using GDP as a measure of output/ welbeing?

Answer 7

1) ignores non-market transactions
2) ignores the underground economy
3) ignores crime or other social problems
4) ignores leisure time
5) ignores changes in environments
6) does not measure distribution of income