Unit 2 - 1

Question 1

How do you measure national income?

Answer 1

1. GDP

2. GNP

Question 2

What is GDP?

Answer 2

1. Gross domestic product - the output of all the goods and services that are produced by a country in one year

Question 3

What is GNP?

Answer 3

1. Gross National Product

2. GDP + output produced by UK owned resources - output by foreign owned resources

Question 4

How do you calculate National Income?

Answer 4

1. Income method - adds the incomes earned by all the owners of the resources used in production
2. Expenditure method - all the spending my governments, individuals and firms, excluding imports as they create incomes for people abroad
3. Output method - adds the value of goods and services produced by all firms in both the private and public sectors

Question 5

What are the problems with calculating national income for standards of living?

Answer 5

1. Need to use real GDP figures as otherwise rises in prices could give indication that output has risen
2. Negative externalities - spilled costs where no compensation is paid - pollution, mental strain
3. Changed in size of population - increase in population = decreased standards of living
4. Welfare may still be bad - growth may have been gained from poor working conditions and many working hours
5. Unequal distribution of incomes - output may have risen but only a few may experience a rise in their standards of living

Question 6

What are the problems with calculating National Income for international comparisons?

Answer 6

1. There may not be a common unit of measurement - different currencies - use purchasing power parity
2. Levels of accuracy vary between countries
3. Composition of total output may differ - some countries may have to spend significantly more on defence

Question 7

What are alternative ways to measure standards of living?

Answer 7

1. Proportion of 16-18 year olds in further education

2. HDI

Question 8

What is real GDP?

Answer 8

GDP adjusted for inflation

Question 9

What are the uses of NI statistics?

Answer 9

1. Measure economic growth
2. Identify countries which may be in need of aid
3. Government planning
4. Find out how much contribution countries have made to world organisations
5. Compare changes of standards of living over time and internationally

Question 10

What are the general problems with calculating NI?

Answer 10

1. Errors and omissions
2. The black economy - people deliberately hide what they earn in order to avoid tax or claim benefits
3. Over- recording - transfer payments and double counting
4. Non- marketing goods such as DIY and babysitting

Question 11

What is injected into the economy?

Answer 11

EXPORTS
INVESTMENT
GOVT SPENDING

Question 12

What are the leakages?

Answer 12

IMPORTS
SAVINGS
TAXATION

Question 13

When is NI in equilibrium?

Answer 13

When leakages = injections

Question 14

What is aggregate demand?

Answer 14

The the total spending by all individuals and firms

Question 15

How do you calculate aggregate demand?

Answer 15

I + G + C + (X-M)

Question 16

What is the definition of national income?

Answer 16

1. The value of all goods and services which are produced by an economy in a year
2. Measure of a country’s economic growth