GDP: Measuring Total Production, Income and Economic Growth

Question 1

What is Microeconomics?

Answer 1

How households and firms make choices, how they interact in markets, and how government intervention influences market outcomes

Question 2

What is Macroeconomics

Answer 2

How national and international economy operates.
The short term fluctuations and long term economic growth.
The impact of government policies on the economy

Question 3

What are two key policies that can achieve macroeconomic goals?

Answer 3

Monetary policy and Fiscal policy

Question 4

What does the monetary policy control?

Answer 4

price stability

Question 5

What does the fiscal policy control?

Answer 5

keeps the economy on track

and smooths out business cycles.

Question 6

What is the importance of international trade?

Answer 6

It is a vehicle for growth and prosperity (free trade)

Question 7

What does GDP stand for?

Answer 7

Gross domestic product

Question 8

What does GDP measure

Answer 8

market value of all final goods and services produced in a country during a period of time

Question 9

How is GDP measured

Answer 9

GDP is measured using market values and not quantities

Question 10

What does GDP account for/?

Answer 10

GDP only accounts for the final goods and services and not inputs on other goods.

Question 11

What production does GDP include for.

Answer 11

GDP only accounts for current production which takes place during an indicated time period and does account for second hand goods.

Question 12

When calculating GDP for a simple economy what are you finding?

Answer 12

The sum of the value of final goods and services.

Question 13

Say your shop sells sunnies (1000 pairs), sunscreen (500 units) and togs (100 pairs). the prices are $20, $10 and 80 respectively. What is the total GDP?

Answer 13

= 20,000+5000+8000

= Total (GDP) = 33,000

Question 14

Firm output value Cost

Farmer wheat $100 0
Flower mill flour $160 100
Bakery Bread $300 150

What is the Value added and what is the GDP?

Answer 14

GDP = Sum of the value added by each firm
= 100+60+140
=$300

Question 15

What are the approaches to measuring GDP?

Answer 15

• Production approach
• Expenditure approach
• Income approach

Question 16

What is the production approach when measuring GDP?

Answer 16

sum of the value of all goods and services produced by industries in the economy in a year minus the cost of goods and services used in the production process, leaving the value added by the industries

Question 17

What is the expenditure approach when measuring GDP?

Answer 17

sum of the total expenditure on goods and services by households, investors, government and net exports

Question 18

What is the income approach when measuring GDP?

Answer 18

sum of the income generated in the production of goods and services, which includes profits, wages and other employee payments, income from rent and interest earned

Question 19

what does each letter mean in the GDP formula?

GDP = Y = C + I + G +NX

Answer 19

• (C) Consumption: spending by households on goods and services, not including spending on new houses
• (I) Investment: spending by firms on capital goods and inventories, and spending by households on new houses
• (G) Government purchases: spending by federal governments on goods and services
• (NX) Net exports: net purchases of Australian output by overseas countries

Question 20

What does NDP stand for

Answer 20

Net Domestic Product

Question 21

What is NDP?

Answer 21

calculated by measuring GDP and subtracting the value of depreciation on capital equipment and prevents GDP from falling

Question 22

what does GNI stand for

Answer 22

Gross national income

Question 23

What is GNI?

Answer 23

Australia’s GDP plus income generated overseas by Australian residents and firms, minus the income generated in Australia by non-residents and foreign firms. Helps to show the economic strength of citizens of a country.

Question 24

What is the difference between real GDP and nominal GDP?

Answer 24

Real GDP is the total, nominal quantity x by the real unit price for each product
Nominal GDP is the total, nominal quantity by the nominal unit price for each product

Question 25

What does the GDP deflator do?

Answer 25

keeping prices stable is the economic goal. It measures the price level

Question 26

What is the formula for the GDP deflator?

practice pg 9 of notes

Answer 26

GDP deflator

= Nominal GDP/ Real GDP x100

Question 27

what is the economic growth rate formula?

Answer 27

Economic growth rate
= (Total GDP deflator - base year total)/base year total x 100
= (answer)%

Question 28

What is long run economic growth?

Answer 28

Process by which rising productivity increases the average standard of living

Question 29

What determines long run economic growth?

Answer 29

• increase in real GDP
• Quantity of goods and services that can be produced by one worker
• Increase in capital per hour (human capital/capital)
• Technological improvement

Question 30

What determines how fast economics grow?

Answer 30

economic growth depend on increases in labour productivity