Measures of National Income, Output and Expenditure

Question 1

GDP can be calculated in 3 different ways

Answer 1

1. The output method
2. The expenditure method
3. The income method

Question 2

The Output Method

Answer 2

Adds up all of the output produced by all of the firms in the economy

Question 3

Problem of output method

Answer 3

Double counting - the outputs of some firms are the inputs of other firms

Question 4

Solution of output method problem

Answer 4

value added

Question 5

Value added

Answer 5

Each firms value added is the market value of its output less the market value of its inputs

Question 6

The total value of a firms output =

Answer 6

The gross value of its output

Question 7

The firms added value =

Answer 7

The net value of its output

Question 8

Added Value measures …

Answer 8

Each firm’s own contribution to total output

Question 9

GVA =

Answer 9

A measure of all final output produced by all productive activity in the economy

Question 10

Total output of the economy =

Answer 10

The sum of all values added in an economy

Question 11

GVA is measured at ….. prices

Answer 11

Base prices (bp) - excluding all taxes and subsides levied by government

Question 12

GDP is measured at ….. prices

Answer 12

Market prices (mp) including taxes and subsidies

Question 13

To get from GVA to GDP we must

Answer 13

Add indirect taxes and deduct subsidies levied on products by authorities

Question 14

The value of total output must equal

Answer 14

The value of incomes received by households

Question 15

Calculation to get GDP (income method)

Answer 15

Compensation of employees + Operating Surplus + Mixed incomes + taxes on production and imports - Less subsidies