unit 2 measuring economic activity

Question 1

Economic Activity

Answer 1

making, providing, purchasing or selling goods and services

Question 2

Anthing that involves producing, distributing or consuming goods and services

Answer 2

economic activity

Question 3

The variable used to measure economic activity is the

Answer 3

GROSS DOMESTIC PRODUCT (GDP)

Question 4

GDP measures

Answer 4

TOTAL value of all the goods and services that are produced in the economy over a period of time.

Question 5

Market value

Answer 5

means that the goods and services are traded in the market place.

Question 6

Final goods and services

Answer 6

Are the final thing like car or hotel

Question 7

Produced in a country in a given period of time

Answer 7

this is referred to as DOMESTIC PRODUCT produced in that particular year.

Question 8

The UAE has a diversified economy. Its GDP is generated from the following key sectors:

Answer 8

oil and gas
real estate and construction
toursim
trade and commercial
financial services
aviation

Question 9

GDP components

Answer 9

GDP = C + I + G + NX

Question 10

GDP = C + I + G + NX

Answer 10

Consumption (C) : the amount of goods and services used by households in an economyInvestment (I) : the purchase of goods that are not consumed in the current period, but are used in the future to produce more goods and services ex ; laptop Government Spending (G)
: this refers to mone spent by the public sector on thepurchase of goods and provision of services such as education, healthcare, defense.
Imports (M) : a good or service bought in one country that was produced in another like cars
Exports (X ) : a good or service produced in one country and sold to a foreign country
Net Exports(NX) : Exports Less Imports

Question 11

Households provide the factors of production with which firms produce goods and services

Answer 11

notional product

Question 12

Firms reward the households for the factors of production

Answer 12

notional income

Question 13

Households spend their income on the goods and services produced by the firms

Answer 13

NATIONAL EXPENDITURE

Question 14

Since we assume that households receive income for the factors of production they provide businesses with (NY)
and households spend the income their receive on the consumption of goods and services (NE)
And that all the goods and services that households consume are produced by businesses in the economy.

This means that the total of

Answer 14

NP = NE = NY
Which leads us to conclude that the size of the economy, the GDP, can be measured either by calculating
NP, NY or NE

Question 14

S, T, M ARE LEAKAGES
HH do not spend all their money on goods and services
produced in the domestic economy.
Some of their income is SAVED, paid to government in the
form of Taxes, or paid to foreign countries in the form of IMPORTS

Answer 14

saving
taxe
import

Question 15

I, G, X ARE INJECTIONS
Banks lend money to firms and HH who use the loans to finance
INVESTMENT. Governments use the taxes they receive in the form
of GOVERNMENT SPENDING. Businesses receive money from
Foreigners who pay for exports from the country

Answer 15

I = INVESTMENT
G= GOVERNMENT SPENDING
X= EXPORTS

Question 16

If water is being lost from the drain at the bottom of the bath tub

Answer 16

If water is being lost from the drain at the bottom of the bath tub LEAKAGES = Savings, Taxes and Imports

Question 17

If water is being added because the tap / faucet is dripping

Answer 17

If water is being added because the tap / faucet is dripping
= INJECTIONS
= Investments, Government Spending, Exports
Then, when total LEAKAGES = total INJECTIONS
S+ T + M = I + G + X

Question 18

Consumer durables

Answer 18

are long-lived consumer goods : cars, furniture, appliances

Question 19

Consumer non-durable goods

Answer 19

Are short lived-goods:clothing food

Question 20

Services

Answer 20

Are the largest component of consumer spending ex: Education, medical services

Question 21

Investment

Answer 21

is spending by firms on final goods and services

Question 22

Business fixed investment
includes purchases of new capital goods

Answer 22

such as factory plants, property, equipment

Question 23

Business fixed investment
Residential investment

Answer 23

is construction of new homes and apartment buildings

Question 24

Government purchases

Answer 24

purchases are final goods and services bought by federal, state, and local governments
ex office supplies ; services of teachers ; equipment

Question 24

Business fixed investment inventory investment

Answer 24

is the change in unsold goods to the company’s inventory

Question 25

Excludes transfer payments

Answer 25

Transfer payments are made by government for which no current production has been
eg unemployment benefits; sickness benefits (Social Security/ Welfare), interest on government debt,
subsidies.

Question 26

Excludes interest

Answer 26

paid on government debt

Question 27

Net exports

Answer 27

are exports less imports
1. Exports are goods and services produced domestically and sold abroad
2. Imports are purchases in the UAE of goods and services produced abroad eg in the USA

Question 28

The INCOME METHOD measures GDP by adding togther :

Answer 28

Gross profits of all companies
Rent income from the ownership of resources
Income of labour – ie wages and salaries

Question 29

GDP is an indication of the standard of living

Answer 29

wellbeing) of a society. A higher the real GDP per capita is an indication of the availability of health services, education and materail goods.
However, GDP it is not a perfect measure of the wellbeing of society for the following reasons
(TRICK remember the word PIES):

Question 30

GDP

Answer 30

P: ignores the size of the population (infact we look at GDP per capita)
I : ignores the level of inequality in the distribution of wealth
does not consider the inequality in the distribution of income and wealth in the economy
E: negative environmental impact eg pollution, deforestation, depletion or resources etc.
S: omits all activity in the undergound economy

Question 31

Economists use another index, the

Answer 31

DEVELOPMENT INDEX (HDI) to measure variables such as happiness, safety, access to education, life expectancy etc. which all contribute towards a improved STANDARD OF LIVING.