Unit 8.2

Question 1

Three ways to measure the value of Aggregate output also known as Gross domestic product (GDP)

Answer 1

Expenditure approach ​

Income approach ​

Output approach

Question 2

The circular flow of income showed that what equals what

Answer 2

Value of total output = total income generated in producing that output= expenditure made to purchase that output

For this reason ​

National income= Total income of the economy = Aggregate output

Question 3

How do you measure GDP through expenditure approach?

Answer 3

Expenditure approach adds up total spending to buy all final goods and services within a year. Four components of spending include:

Consumption spending (C)= All spending by consumers to buy goods and services

Investment spending (I)= All spending by firms to buy capital goods plus all private construction

Government spending (G)= All spending by governments, include labor costs and infrastructure (roads, ports, hospitals)

Net exports (X-M)= exports (X) - Imports (M)= All spending by foreigners to buy exports minus all spending by domestic consumers to buy imports

C+!+G+(X-M) = GDP where it is a measure of economic activity

Question 4

How do you measure GDP through income approach?

Answer 4

Adds up all income earned by the four factors of production in the course of producing total output within a year:

Rent earned by land
Wages earned by labor
Interest earned by capital
Profit earned by entrepreneurship

Rent + wages + interest + profit = national income

National income is another measure of
economic activity, and can be used to
calculate GDP after certain adjustments are made.

Question 5

How do you measure GDP through output approach?

Answer 5

Measuring GDP by the output
approach

Adds up the value of each good and
service (PxQ) produced in the economy
within a year, thus obtaining the value
of all final goods and services, which is
equal to GDP.

The value of goods and services is
calculated for each sector in the
economy, such as:

-goods in the agricultural sector

-goods in the manufacturing sector

-services in the:
health sector
education sector
finance sector, etc.

This approach allows comparisons
of the relative contribution of each
sector to GDP.

Question 6

What are different measures of national income

Answer 6

GDP​

GNI (GNP)​

Nominal GDP​

Real GDP​

Green GDP​

GDP per capita​

GDP at Purchasing Power Parity (PPP)

Question 7

GDP

Answer 7

The value of all final goods and services produced within an economy over a
period of time, usually a year

Question 8

GNI

Answer 8

The total income received by the residents of a country, equal to the value of all goods and services produced by the factors of production supplied by the country’s residents regardless of where the factors are located

Question 9

Green GDP

Answer 9

GPD- cost of environmental destruction

Question 10

Nominal GDP​

Answer 10

Measures output at current prices without adjusting for inflation

Question 11

Real GDP​

Answer 11

Adjusts for inflation by measuring the value of goods and services produced using constant prices

Question 12

GDP per capita​

Answer 12

GPD/Population

Question 13

GDP at Purchasing Power Parity (PPP)

Answer 13

Adjusts economic output based on the relative prices of goods and services across countries

Question 14

Purchasing power parity

Answer 14

Purchasing Power Parity (PPP) helps us compare the value of money in different countries by considering how much stuff you can buy with the same amount of money due to differences in prices