Measures of Economic Activity

Question 1

What are the 3 ways to measure the value of aggregate output?

Answer 1

1. expenditure approach (sum of spending on G&S wtin time period wtin country)
2. income approach (sum of income of factors of production wtin time period wtin country)
3. output approach (calculate value of all final G&S wtin time period wtin country)

Question 2

What does the term “final” mean?

Answer 2

all G&S ready for final use

Question 3

What are the four components of total spending / aggregate output?

Answer 3

Consumption (C) - household purchasing of final G&S

Investment (I) - spending of firms (capital goods, construction)

Gov. spending (G)

Net exports (exports (X) - imports (M))

Question 4

What is Gross Domestic Product (GDP)?

Answer 4

the market value of all final G&S produced in a country over a time period, REGARDLESS OF WHO OWNS THE FACTORS OF PRODUCTION

used as a measure of aggregate output

Question 5

What is the GDP expenditure approach formula?

Answer 5

GDP = C + I + G + (X - M)

Question 6

What is Gross National Income/Product (GNI / GNP)?

Answer 6

total income received by the residents of a country, equal to the value of GDP, SUPPLIED BY THE COUNTRY”S RESIDENTS REGARDLESS WHERE THE FACTORS ARE LOCATED

Question 7

What is the difference btw nominal and real values?

Answer 7

nominal - money value / value measures in terms of prices that prevail at the time of measurement

real - measure of value that takes into account changes in prices over time (eliminates influence of changes in prices)

Question 8

What is the difference btw total and per capita?

Answer 8

total - measures of value of output & income provide a summary of the overall SIZE OF THE ECONOMY

per capita - useful summary of the standards of living, bc indicates how much of total output in economy corresponds to each person on average

Question 9

What is the distinction btw different population sizes and population growth?

Answer 9

diff. pop. thus per capita aids in comparison

pop. growth -
if total GDP > pop. growth = increase GDP per capita

of pop. growth > total GDP = decrease GDP per capita

Question 10

Why do national income statistics (GDP & GNI/P) are not TRUE measure of the value of output?

Answer 10

1. Do not include non-market output (e.g. self-sufficient homes)
2. Do not include underground (parallel) markets (e.g. handyman but no invoice)
3. Do not take into account quality improvement
4. Do not account for negative externalities (e.g. pollution)
5. Do not account depletion of natural resources
6. Do not take into account differing domestic price levels (e.g. 2 countries, same GDP, goods in one $100, in other $200)

Question 11

Why do GDP & GNI/P not accurately measure standards of living?

Answer 11

1. no distinctions abt composition of output (e.g. 1 country lower GDP but higher G&S prices)
2. do not reflect education, health & life expectancy (e.g. improvements)
3. no info on distribution of in/output (e.g. country wt higher GDP but concentrated wealth)
4. do not include increased leisure
5. do not account for quality of life factors (e.g. crime, security, freedom, stress levels, politics)

Question 12

What is green GDP (& formula)?

Answer 12

GDP that accounts for the value of resource & environmental destruction

Green GDP = GDP - value of degradation - P

(P - all expenditures resulting from cleaning up pollution, etc)

Question 13

GNI/P formula?

Answer 13

GNI = GDP + net income from abroad

net income from abroad = income from abroad - income sent abroad