National Income Accounting

Question 1

Define GDP

Answer 1

It is the total money value of all final goods and services produced within a country’s geographical region within a given time period.

Question 2

Define GNP

Answer 2

It is the total money value of all final goods and services produced by the residents of a country within a given time period.

Question 3

What is the difference between real GDP and nominal GDP?

Answer 3

Real: Adjusted for inflation and evaluated using base year market prices.
Nominal: Evaluated at current market prices.

Question 4

What are the 2 limitations of measuring National Income?

Answer 4

1. Non-reported and non-marketable transactions
2. Availability and credibility of data

Question 5

What are non-reported transactions?

Answer 5

Refers to legal and illegal unreported transactions that understate the national income.

Legal: Temporary workers do not report their income (paid in cash) to save taxes.

Illegal: Underground markets.

Question 6

What are non-marketable transactions?

Answer 6

It refers to non-monetary transactions (non-market).

Eg. Housewife services in India are estimated at 45,000 rupees monthly.

Question 7

Why is availability and credibility of data affected in LDCs?

Answer 7

Poor data collection practices, and poor tracking of spending and production.

Question 8

Define material standard or living

Answer 8

The quantity and quality of goods accrued to households in a nation.

Question 9

What are the general limitations of measuring material SOL?

Answer 9

• Inflation/deflation
• Population size
• Income distribution
• Types of goods produced
• Quality of consumer goods produced

Question 10

What is one limitation in measuring material SOL over space and over time?

Answer 10

• Over space: Conversion to a common currency (Purchasing Power Parity Dollars)
• Over time: Changes in monetisation of an economy

Question 11

What is the Gini Coefficient?

Answer 11

• It measures income inequality.
• It ranges from 0 to 1.
• With 0 being perfect income equality and 1 being perfect income inequality.

Question 12

Define non-material standard of living

Answer 12

It is the measurement of the qualitative aspect of life.

Question 13

What are some aspects of non-material SOL?

Answer 13

• Working hours
• Amount of leisure time
• Stress levels
• Negative externalities
• Life expectancy at birth
• Education levels
• Unemployment rates

(min. 3)

Question 14

What are the 3 composite indicators?

Answer 14

• Human Development Index
• Measure of Welfare
• Genuine Progress Indicator

Question 15

How is the HDI calculated?

Answer 15

3 aspects:
- Life expectancy at birth -> good healthcare
- Real GDP per capita -> material SOL (adjusted using PPP$)
- Education levels -> good future job prospects, good future non-material SOL

Question 16

How is the MEW calculated?

Answer 16

GNP + Value of leisure activity + Value of underground activity - Cost of disamenity

Question 17

How is the GPI calculated?

Answer 17

It accounts for Gini Coefficient when calculating real GDP and takes into consideration the costs of disamenity.