National Income Flashcards
What does Market for factors of production mean ?
Households supply factors of production (labor,capital,land etc. ) to firms, for which they receive income (wage, salary, rent, profit etc.)
What does Market for Goods and Services mean?
Firms supply goods and services to households and in return, households’ expenditures on the goods and services become firms’ revenues.
In a simple Economy Total Income equals to
Total Expenditure = Total Output
What is Gross Domestic Product (GDP) ?
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.
GDP excludes what and includes what ?
- 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
How is Gross National Product (GNP) calculated ?
GNP is calculated by adding net factor income to GDP.
GNP= GDP+Net Factor Income
What is Net factor income ?
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.
How many ways are there to Measure Economic Activity ?
There are two main ways of looking at economic activity a
- expenditure
- income approaches
What are main expenditures in an economy ?
- Consumption (C)
- Investment (I)
- Government Expenditure (G) (pending on roads, health, education, defense and the salaries of civil servants)
- Exports of Goods and Services (X)
- Imports of Goods and Services (IM)
How is GDP calculated in the expenditure approach ?
Y = C + I + G + X - IM
How is GDP calculated in Income Approach ?
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
How Net domestic income at factor cost is calculated?
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
What does Factor cost mean?
value of a good or service measured by adding together the costs of all the factors of production used to produce it.
Why the market price and factor cost values are not the same ?
Because of government taxes or subsidies
What is an indirect tax ?
tax paid by the consumers when they buy goods and services.
Value added tax (VAT) is a good example of an indirect tax.
What does subsidy mean?
a payment by the government to a producer
(producers receive more from the production of some goods and services than producers pay for them)
How does net domestic product at market prices (NDP) calculated?
NDP=Net Domestic ıncome at factor cost+Indirecttax - Subsidies
piyasa fiyatlarıyla net yurtiçi hasıla
What is Depreciation ?
the decrease in the value of the capital stock that results from wear and tear and the passage of time
What is Nominal GDP
The production of goods and services valued at current prices
If Nominal GDP increases from one year to the next, what does this show?
(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
What does Real GDP show?
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.
What does GDP deflator measure ?
measures the current level of pries relative to the level of prices in the base year
GDP Deflator = Nominal GDP/Real GDP *100
What is the most used statistic for the economic well-being of a society ?
per capita income
how is GDP per capita is calculated?
GDP Per Capita =GDP/Total Population
What is purchasing power parities (PPP) ?
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.
What thing that contribute to a good life are left out of GDP ?
- 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)
What is net economic welfare NEW ?
which adjust GDP by deducting ‘bads’ and adding the value of non-market activities including the value of leisure
