lesson 3-circular flow of income

Question 1

what is the difference between GDP and GNP?

Answer 1

GDP= total value of the goods and services produced in a country
GNP=GDP+ income earned from abroad

Question 2

what is a transfer payment

Answer 2

a payment that doesn’t benefit the economy
e.g. pocket money

Question 3

why is national income measured?

Answer 3

-economists can test theories
-comparisons
-forecast future changes
-indicates economic welfare

Question 4

why are some national income statistics inaccurate?

Answer 4

-hidden economy e.g. tax evaders
-mistakes/inaccuracies
-self sufficient people
-businesses in the public sector-
government funds

Question 5

why is it hard to compare national income between countries?

Answer 5

different currencies

Question 6

what is the purchasing power parity/PPP?

Answer 6

looks at the costs of buying a good or service across different countries
e.g. the big mac index- price of a big mac is
converted to the same currency and
compared

Question 7

what is measured to calculate national income?

Answer 7

-national output(O)
-national expenditure(E)
-national income(Y)
O=E=Y

Question 8

what is a closed economy?

Answer 8

no government/taxes
-no foreign trade
households own wealth in the form of the factors of production. They supply these to firms and get income back(Y)
-firms produce goods and services using the factors of production and sell(E) these to households(O)

Question 9

what is an open economy?

Answer 9

closed+
withdrawals-saving(S)
-taxes(T)
-imports(M)
injections-investments(I)
-government spending(G)
-exports(X)
-equilibrium when withdrawals=injections
-countries want net injections for economy growth