Lecture Notes: 2 National Income Accounting and GDP

Question 1

national income accounting

Answer 1

framework used to measure current econ activity.

challenges: measuring for different g&s, across time, across countries, “observable and unobservable” activitiies

Question 2

fundamental identity of national income accounting

Answer 2

$ of product approach = $ of expenditure approach = $ of income approach

Question 3

GDP - product approach

Answer 3

GDP is the market value of all final goods and services newly produced within a national economy during a fixed period of time.

Question 4

inventory investment

Answer 4

unsold and finished G&S and also goods in process (intermediate goods that are turned into final goods in the future)

Question 5

GDP vs GNP

Answer 5

GDP measures production within country borders

GNP measures output produced by domestically owned factors of production (LABOR or CAPITAL) – includes Americans working in Italy and includes American-owned factories located in Italy

GDP = GNP-NFP

Question 6

net factor of payments

Answer 6

difference between payments to domestically owned factors of production located abroad (income realized abroad) and payments to foreign factors located domestically (income realized domestically by foreigners)

(Payments to US-owned factory in Italy - Payments to Italian owned factory in US)

Question 7

NDP

Answer 7

Net Domestic Product (NDP) = GDP – depreciation

Question 8

market exchange rate & PPP

Answer 8

1. emphasize g&S traded internationally and underestimate value of goods not traded internationally
2. currency exchange rates fluctuate over time and are affected by monetary/fiscal policies and are a target of speculation

How to solve this problem? PPP measure.