Gross Measures- Economic Activity

Question 1

What is the best gross measurement of the economy?

Answer 1

Nominal Gross Domestic Produce (GDP): Measures the total output of final goods and services produced for exchange in the domestic market during a period

Question 2

What is NOT included in GDP?

Answer 2

• Goods/Services
• Illegal Activities
• Activities for which there is no market exchange (Do it Yourself Activities)
• Goods produced in foreign countries by US-owned entities

Question 3

What are the two approaches to measure GDP

Answer 3

Expenditures approach- Measure GDP final sales/purchases, the sum of spending by individuals, governments, businesses, foreign buyers

Income approach- value of income and resources (compensation, rental income, proprietors corporate income, net interest, taxes on production, depreciation)

Question 4

What is REAL GDP?

Answer 4

Measures the total output of final goods and services produced for exchange in the domestic market during a period at a constant prices.

Question 5

How do you get real GDP?

Answer 5

Nominal GDP adjusted for changing prices

Question 6

What is GDP per capita?

Answer 6

Real GDP per individual.

Question 7

What is net GDP?

Answer 7

GDP Less capital consumed during during a period (GDP - Depreciation)

Question 8

What is potential GDP?

Answer 8

Maximum output that can occur in domestic economy at point in time without creating upward increases in prices or inflation

Question 9

If real GDP is less than potential GDP, what does that mean?

Answer 9

There are inefficiencies in the economy

If real GDP > Potential- this creates upward pressure on prices and inflation

Question 10

What is GNP (GROSS NATIONAL PRODUCT)

Answer 10

Measures total output of all goods and services produced world-wide using US resources

Includes goods and services produced by foreigners produced by US entities

Question 11

What is NNP

Answer 11

Measures the total output world-wide using US resources, but does not include a value for deprecation

GNP-Depreciation factor

Question 12

What is national income

Answer 12

Measures the total payments for economic resources included in the production of all goods and services, includes payments for:

• Wages, Interest, rents, and profits

Question 13

What is personal income?

Answer 13

Total payments for economic reousrces received by individuals

• PI = NI- Corporate profits - SS Deductions + Dividends and interest received by individual + Government transfer payments to individuals

Question 14

What is personal disposal income?

Answer 14

Amount of income individuals have to spend

PDI = PI - Income Taxes