Macro – National Accounting

Question 1

What are the Approaches that can be Used when Measuring National Output?

Answer 1

1) Expenditure approach
2) Income approach
3) Output approach

Question 2

Explain the Expenditure Approach

Answer 2

Measures the total spending of consumption, investment, government spending and net exports (exports – imports).

Question 3

Explain the Income Approach

Answer 3

Adds up all income earned by the factors of production within a country over a time period (usually a year).

Question 4

Explain the Output Approach

Answer 4

Measures the value of each good and service produced in the economy over a particular time period (usually a year).

Question 5

Identify and Calculate GDP

Answer 5

GDP is the total value of all final goods and services produced within a country over a time period.
GDP = C + I + G + (X - M)

Question 6

Identify and Calculate GNI

Answer 6

GNI is the total value of all final goods and services produced by the factors of production supplied by the country’s residents regardless of where they are located.
GNI = GDP + net income from abroad

Question 7

Identify and Calculate GDP per capita

Answer 7

Provides an indication of how much total output of the economy corresponds to each person on average.
GDP per capita = GDP / population

Question 8

How are PPP Values used with GDP?

Answer 8

Using PPP eliminates the influence of price differences on the value of output by converting all GDP values in US$.

Question 9

State the Formula to calculate Real GDP

Answer 9

(Nominal GDP / Price deflator) x 100

Question 10

Define and calculate GDP Deflator

Answer 10

Price index used to convert nominal GDP into real.

Price deflator = (Nominal GDP / Real GDP) x 100

Question 11

What can GDP Deflator values Show?

Answer 11

Increasing values can show a rising of the average price level (and vice-versa)

Question 12

What is the Business Cycle?

Answer 12

Consist of short-term fluctuations in the growth of real output which are alternating periods of expansion and contraction.

Question 13

What do Short-term Fluctuations in the Business Cycle represent?

Answer 13

They can represent periods of expansion (growth in real GDP and achieving a peak) and periods of contraction (falling real GDP and achieving trough).

Question 14

What does the Long-term Growth Trend in the Business Cycle represent?

Answer 14

Average growth over long periods of time. It represents

Question 15

What does the Long-term Growth Trend in the Business Cycle represent?

Answer 15

Average growth over long periods of time; it represents potential output/GDP. At this level of output there is full employment of resources (unemployment = natural rate).

Question 16

How can Macroeconomic Objectives be shown through the Business Cycle?

Answer 16

Macroeconomic objectives include making the potential output curve steeper (economic growth) and reduce the intensity of fluctuations (inflation + unemployment).

Question 17

What are the Limitations of GDP and GNI?

Answer 17

Cannot accurately measure the true value of output or well-being

Question 18

What Alternative measures can be used to Measure Well-being in an Economy?

Answer 18

1) OECD Better Life Index (countries selected factors)
2) Happiness Index (personal conditions - UN)
3) Happy Planet Index (sustainability - NEF)

Question 19

Why do GDP and GNI not accurately measure the True Value of Output?

Answer 19

They do not consider:
• Parallel markets
• Quality improvements
• Value of negative externalities
• Depletion of natural resources
• Differing price levels across countries

Question 20

Why do GDP and GNI not accurately measure Well-being?

Answer 20

They do not:
• Make distinctions in types of output (goods produced)
• Reflect achievements in education
• Include increased leisure (free time)
• Include quality of life