National Accounts Flashcards
What are national accounts?
A system for measuring a country’s overall economic activity, including income and expenditure flows.
What are the three main methods to calculate GDP?
Output method, Income method, Expenditure method.
What does the expenditure approach to GDP include?
GDP = C + I + G + (X - M)
What does ‘C’ stand for in the GDP formula?
Personal Consumption – household spending on goods and services.
What does ‘I’ represent in the GDP formula?
Gross Investment – includes capital formation and stock changes.
What does ‘G’ represent in the GDP formula?
Government spending on goods and services.
What is the (X - M) part of the GDP formula?
Net exports: Exports minus Imports.
Which GDP component is the largest in most economies?
Consumption (C).
Which GDP component is the most volatile?
Investment (I).
Which GDP component drives long-run growth?
Investment (I).
Why is government spending considered controversial in GDP?
Because it involves public policy choices and may not directly increase welfare.
Why are imports subtracted in the expenditure approach to GDP?
Because they are not part of domestic production.
Are second-hand goods included in GDP?
No, only newly produced goods and services count towards GDP.
What is meant by GDP at market prices?
GDP including taxes and subsidies on products.
What is GDP at factor cost?
GDP excluding taxes/subsidies – reflects true income earned by production factors.
What is nominal GDP?
GDP measured at current prices, not adjusted for inflation.
What is real GDP?
GDP adjusted for inflation using base-year prices.
What is GNP (Gross National Product)?
GDP plus net income earned from abroad.
What is GDP per capita?
GDP divided by the population – a measure of average income/living standards.
What is GDP (PPP)?
GDP adjusted for differences in the cost of living between countries (Purchasing Power Parity).
What is GNDI (Gross National Disposable Income)?
GNP plus net transfers from abroad.
What is Modified GNI (GNI*)?
GNI adjusted to exclude profit shifting by multinationals, especially in Ireland.
Why can exports exceed GDP in small economies?
Because they export more than the value of their total GDP – typical in open, export-led economies.
Why does GDP fall when a paid service (e.g. housemaid) becomes unpaid (e.g. marriage)?
Because non-market activity isn’t included in GDP.
What are some limitations of GDP as a measure of welfare?
It doesn’t account for inequality, environmental damage, informal economy, or quality of life.
What are the three sectors in a simple circular flow model?
Households, Firms, and Government (or just Households and Firms in basic model).
What does the circular flow model show?
The flow of income, expenditure, and production in an economy.
How are National Income, Output, and Expenditure related?
In theory, they are equal: Income = Output = Expenditure.
