Topic 1: National Account, Price Indices and BOP

Question 1

Show the Circular Flow Diagram

Answer 1

Question 2

Write the GDP expenditure equation:

Answer 2

Ch + X + I + G

Question 3

Write the income disposal equation

Answer 3

Y = N + S + T + M + Ch

Question 4

Three methods for calculating GDP:

Answer 4

• Income disposal.
• Expenditure on GDP.
• Value added.

Question 5

What is a Laspeyres index?

Answer 5

Base year permanent.

Ex: CPI.

Question 6

What is a Paasche index?

Answer 6

Weights based on present volume.

Question 7

Compare the CPI vs GDP

Answer 7

• CPI includes imports, good for welfare.
• GDP is the ratio of nominal to real GDP, no intermediate. More reflective of producer stuff. Includes exports, not imports.

Question 8

Outline the BOP equation.

Show how exports, purchasing of foreign assets affect this.

Answer 8

CA + KA = 0

KA is a measure of capital flows, where positive is into the country.

CA is a measure of good flows, where positive is out of the country.

Question 9

Components of the current acount

Answer 9

Exports - Imports + Net inflows to households + Net gifts to households.

CA = X - M + N (gifts not included.)

Question 10

Show how National Income relates to Domestic absorption.

Answer 10

A = C + I + G

Y = C_H + I + G + X

Y = C - M + I + G + X

Y - A = X - M = CA = - KA