Measuring a Nation's Income

Question 1

Gross Domestic Product (GDP) helps

Answer 1

• Measures the total income of everyone in the economy
• Measures the total expenditure on the economy’s output of goods and services

Question 2

For an economy as a whole

Answer 2

income must equal expenditure.

Question 3

Gross Domestic Product (GDP) is

Answer 3

the market value of all final goods and serviced produced within a country in a given period of time.

Question 4

Goods are valued at their market prices. Things that don’t have a market value such as second-hand goods are

Answer 4

Excluded!

Question 5

Gross National Product (GNP) is

Answer 5

The value of final goods and services produced by the country’s factors of productions (labor and capital)

Question 6

A Japanese woman works as a teacher in the US. The value she creates is included in

Answer 6

• US GDP
• Japanese GNP

Question 7

Intermediate goods are

Answer 7

components or ingredients in the production of other goods

Question 8

The value of intermediate goods should or should not be used for the calculation of GDP?

Answer 8

Should not. Because intermediate goods are not final goods, if we include its value, there will be double-counting problems.

Question 9

The formula to calculation a country’s GDP is

Answer 9

• Y = C + I + G + NX
• Y = C + I + G + EX - IM

Question 10

Purchases of new housing will be included in

Answer 10

investment

Question 11

Consumption is

Answer 11

spending by households on goods and services

Question 12

Investment is

Answer 12

purchases of (capital) goods that will be used to produce other goods and services

Question 13

Investment includes

Answer 13

• Business capital: business structures, equipment, and intellectual property products
• Residential capital: landlord’s apartment building, a homeowner’s personal residence
• Inventory accumulation: an excess of inventory that a business owner has difficulty moving after an unplanned event adversely affects sales

Question 14

Government purchases are

Answer 14

Government consumption expenditure and gross investment (by local, state, and federal governments)
* Does NOT include transfer payments such as pension, social security payments (because government purchases refer to the expenditures made by the government on goods and services that are used in the production process or directly consumed by the government. These purchases include items such as infrastructure development, defense equipment, salaries of government employees, and other public goods and services. Transfer payments, on the other hand, are payments made by the government to individuals or other entities without receiving any corresponding goods or services in return.)

Question 15

Net export is

Answer 15

spending on exports minus spending on imports

Question 16

Nominal GDP is

Answer 16

• Values output using current prices
• Not corrected for inflation

Question 17

Real GDP is

Answer 17

• Values output using the prices of a base year
• Is corrected for inflation

Question 18

GDP deflator is:

Answer 18

• Ratio of nominal GDP to real GDP times 100
• Measures the current level of prices relative to the level of prices in the base year
• Can be used to take inflation out of nominal GDP (“ deflate ”nominal GDP)
• GDP deflator = (Nominal GDP/Real GDP) x 100

Question 19

The calculation of nominal GDP, real GDP, and GDP deflator. (Table)

Answer 19

Question 20

How to calculate percentage change?

Answer 20

% change = 100 x (final - initial)/initial