The Data of Macroeconomics

Question 1

What are the 3 definitions of Gross Domestic Product?

Answer 1

• Total expenditure on domestically produced final goods and services
• Total income earned by domestically located FoP
• The monetary value of the total goods and services that can be produced in an economy over time

Question 2

Why can GDP have so many different definitions?

Answer 2

• Circular Flow of Income
• For every buyer there must be a seller

Question 3

How can you calculate the GDP of all the goods in an economy?

Answer 3

• Sum together the value added at all stages of the production process

Question 4

Explain the difference between stock and flow concepts in economics, and what GDP comes under

Answer 4

• Stock: A quantity measured at a particular point in time (wealth, capital stock)
• Flow: A quantity measured per unit of time (investment, wages)
• GDP is a flow variable

Question 5

What is GNP? How does it differ from GDP?

Answer 5

• GNP: Total Income earned by a nation’s FoP, regardless of the location
• GNP-GDP = Factor payments from abroad - factor payments to abroad
• Factor Payments = Interest, Profit, Wages, Rents …

Question 6

What is the difference between Real and Nominal GDP?

Answer 6

• Real GDP uses prices of a predetermined ‘base year’ to calculate GDP
• Nominal GDP uses current prices to calculate GDP
• By using Real GDP, we can eliminate effects of inflation to tell performance

Question 7

What do we expect to see in terms of Nominal and Real GDP

Answer 7

• Nominal GDP > Real GDP if inflation > 0

Question 8

If RDGP = NGDP, what does this mean?

Answer 8

• You are in the base year

Question 9

Looking at GDP, what are LR and SR trendsof growth rates?

Answer 9

• In the SR, GDP may be susceptible to fluctuations
• In the LR, GDP has a +ve upward trend

Question 10

What is the GDP Deflator equation? How do you obtain the Inflation Rate from this?

Answer 10

• NGDP / RGDP X 100%
• Inflation Rate = %change in GDP deflators

Question 11

What is the CPI? How do you obtain the Inflation Rate from this? Why does it differ from the GDP deflator?

Answer 11

• Measures the General price of a basket of goods that are typically consumed by an average household
• The change in CPI is the inflation rate
• Usually more extreme as it is fixed in the SR and includes imports

Question 12

Name the other 2 mentioned types of Inflation rates

Answer 12

• Personal Consumption Expenditures (PCE) = the ratio of nominal:real spending
• Change in Wage Rates
• Retail Price Index (RPI)

Question 13

What are some of the concerns of Inflation? What is Pure inflation?

Answer 13

• Pure inflation is where nominal wages grow at the same rate as goods
• There is no issue with pure inflation, as real purchasing power stays the same
• When the inflation rate has grown quicker than other goods, issues arise
• You don’t want extreme inflation rates (target=2%)

Question 14

How can you categorise the population with relation to employment?

Answer 14

• Employed: Those in work
• Unemployed: Those out of work, but are actively searching for work
• LF: Sum of the population who are able and willing to produce goods and services
• Inactive: Not in the Labour Force

Question 15

How do you calculate the Unemployment Rate and the Labour Force Participation?

Answer 15

• Unemployment Rate = Unemployed / LF
• LFS = LF / Adult Population

Question 16

What are some concerns of unemployment?

Answer 16

• Direct effect on welfare of the Unemployed
• A sign of efficiency of HR allocation- If too high or too low, resources are badly distributed