National Income

Question 1

What does Market for factors of production mean ?

Answer 1

Households supply factors of production (labor,capital,land etc. ) to firms, for which they receive income (wage, salary, rent, profit etc.)

Question 2

What does Market for Goods and Services mean?

Answer 2

Firms supply goods and services to households and in return, households’ expenditures on the goods and services become firms’ revenues.

Question 3

In a simple Economy Total Income equals to

Answer 3

Total Expenditure = Total Output

Question 4

What is Gross Domestic Product (GDP) ?

Answer 4

GDP is the market value of

all final goods and services

produced in a country during a specific period of time usually taken to be a year.

Question 5

GDP excludes what and includes what ?

Answer 5

• Excludes production abroad by domestic companies
• Includes the production undertaken in the domestic economy by foreign companies.

Anything produced within the borders is part of country’s GDP

Question 6

How is Gross National Product (GNP) calculated ?

Answer 6

GNP is calculated by adding net factor income to GDP.

GNP= GDP+Net Factor Income

Question 7

What is Net factor income ?

Answer 7

is the factor income (wages, profits, etc.) earned by the citizens of a country working abroad minus the factor income earned by foreign citizens operating in that country.

Question 8

How many ways are there to Measure Economic Activity ?

Answer 8

There are two main ways of looking at economic activity a

• expenditure
• income approaches

Question 9

What are main expenditures in an economy ?

Answer 9

1. Consumption (C)
2. Investment (I)
3. Government Expenditure (G) (pending on roads, health, education, defense and the salaries of civil servants)
4. Exports of Goods and Services (X)
5. Imports of Goods and Services (IM)

Question 10

How is GDP calculated in the expenditure approach ?

Answer 10

Y = C + I + G + X - IM

Question 11

How is GDP calculated in Income Approach ?

Answer 11

GDP is measured by adding together

• all the incomes paid by firms to households for the services of the factors of production they hire

Net domestic income at factor cost

Question 12

How Net domestic income at factor cost is calculated?

Answer 12

all the incomes paid by firms to households for the services of the factors of production they hire –

Sum of

• wages for labor,
• interest for capital,
• rent for land and profits
• paid for entrepreneurship.

WAGE+INTEREST+RENT+PROFIT

Question 13

What does Factor cost mean?

Answer 13

value of a good or service measured by adding together the costs of all the factors of production used to produce it.

Question 14

Why the market price and factor cost values are not the same ?

Answer 14

Because of government taxes or subsidies

Question 15

What is an indirect tax ?

Answer 15

tax paid by the consumers when they buy goods and services.

Value added tax (VAT) is a good example of an indirect tax.

Question 16

What does subsidy mean?

Answer 16

a payment by the government to a producer

(producers receive more from the production of some goods and services than producers pay for them)

Question 17

How does net domestic product at market prices (NDP) calculated?

Answer 17

NDP=Net Domestic ıncome at factor cost+Indirecttax - Subsidies

piyasa fiyatlarıyla net yurtiçi hasıla

Question 18

What is Depreciation ?

Answer 18

the decrease in the value of the capital stock that results from wear and tear and the passage of time

Question 19

What is Nominal GDP

Answer 19

The production of goods and services valued at current prices

Question 20

If Nominal GDP increases from one year to the next, what does this show?

Answer 20

(1) The economy is producing a larger amount of goods and services (output rises) and prices remain unchanged.
or
(2) Goods and services are being sold at higher prices and output remains unchanged.
or
(3) Both output and prices rise

Question 21

What does Real GDP show?

Answer 21

What would be the value of the goods and services produced this year if we valued these goods and services at the prices that prevailed in some specific year in the past? That specific year is called the base year.

Question 22

What does GDP deflator measure ?

Answer 22

measures the current level of pries relative to the level of prices in the base year

GDP Deflator = Nominal GDP/Real GDP *100

Question 23

What is the most used statistic for the economic well-being of a society ?

Answer 23

per capita income

Question 24

how is GDP per capita is calculated?

Answer 24

GDP Per Capita =GDP/Total Population

Question 25

What is purchasing power parities (PPP) ?

Answer 25

PPP measures how many units of one country’s currency are needed to buy exactly the same basket of goods as can be bought with a given amount of another country’s currency.

Question 26

What thing that contribute to a good life are left out of GDP ?

Answer 26

• household production activities, child-care activities, and volunteer work.
• GDP is a quantitative measure not a qualitative measure of the output of goods and services in an economy. (military expenses)
• income distribution
• Leisure Time
• The Hidden Economy
• Economic ‘Bads’ (Pollution)

Question 27

What is net economic welfare NEW ?

Answer 27

which adjust GDP by deducting ‘bads’ and adding the value of non-market activities including the value of leisure