Topic 1

Question 1

GDP

Answer 1

Gross Domestic Product: The final value of all goods and services produced within an economy over a given period.

Question 2

GDP formula

Answer 2

Y = C + I + G + NX

Question 3

Components of GDP

Answer 3

Consumption
Investment
Government purchases
Net exports.

Question 4

GDP excludes…

Answer 4

Unpaid work
Black market
Nations happiness.

Question 5

Other methods of measuring a nations income

Answer 5

GNP, GNDI, Real vs Nominal GDP, The GDP deflator

Question 6

GNP formula (Gross National Product)

Answer 6

GDP + NFIA

Question 7

NFIA (Net Foreign Income from Abroad)

Answer 7

The difference between the income earned by New Zealanders in foreign countries and that paid to foreigners for their contribution to GDP is known as net factor income from abroad

Question 8

GNDI Formula (Gross National Disposable Income)

Answer 8

GNP + NCT (Net current transfers)

Question 9

NCT (Net Current Transfers)

Answer 9

Include transfer payments from overseas (e.g. gifts from family) and exclude transfer payments to other countries (e.g. aid to developing nations).

Question 10

Nominal GDP

Answer 10

Uses current prices to value the economy’s production of goods and services in that year. Changes in nominal GDP reflect both changes in the quantities of goods and services and their prices.

Question 11

Real GDP

Answer 11

Uses constant (base-year) prices to place a value production of goods and services. Changes in real GDP reflect only changes in the quantity of goods and services.

Question 12

GDP inflator formula

Answer 12

Nominal GDP/Real GDP x 1000

Question 13

Real GDP formula

Answer 13

Base year price x Current output

Question 14

Inflation formula

Answer 14

= (GDPdeflator2017 - GDPdeflator2016) / GDPdeflator2016 x 100 = I - r = (New price - Old price) / Old price x 100 = (CPI2017 - CPI2016) / CPI2016 x 100

Question 15

CPI formula

Answer 15

Expenditure in current year / Expenditure in base year x 1000

Question 16

Why GDP is an Imperfect Measure of Economic Wellbeing

Answer 16

It isn’t 100% accurate, as welfare depends on much more than what can be consumed, for example:
•	Health and life expectancy 
•	Income and Wealth Distribution
•	Education levels  
•	Political and civil freedoms

Question 17

Inflation

Answer 17

The loss of value of money over time due to the supply of money increasing faster than the supply of goods.

Question 18

CPI

Answer 18

(Consumer Price Index)
A basket of goods meant to represent the average household consumption bundle of an economy. Changes to the value of this basket of goods is meant to reflect changes to the general price level in the economy.

Question 19

Real value formula

Answer 19

100 x Nominal Value / CPI

Question 20

Costs of inflation

Answer 20

• Distorts signals from relative prices (more noise)
• Distorts tax system (“bracket creep” and additional tax on real interest payments)
• Unexpected redistribution – workers without indexed wages lose, borrowers gain at the cost of lenders
• Uncertainty for long-term planning reduces investment (hinders economic growth)
• “Shoe-leather” costs – more trips to the bank as interest rates are higher