W1P1 GDP

Question 1

Is GDP a good measure of welfare?

Answer 1

No, not necessarily. It misses many aspects of social well-being like the
level of inequality

Question 2

What are the shortcomings of GDP?

Answer 2

It also leaves out some parts of the economy that
are not properly registered.

Question 3

Distinguish between real and nominal GDP

Answer 3

Nominal GDP uses current prices whereas real GDP uses the fixed prices of a base year. Comparing nominal GDP values can be misleading as changes can be entirely driven by changes in prices.

Question 4

What is meant by private disposable income?

Answer 4

Private disposable income is the income of individuals after paying taxes and receiving transfers from the government. In all what is coming, we will assume that taxes are net taxes i.e. taxes minus transfers.

Question 5

What happens to GDP when a housewife becomes self-employed as her own day care centre?

Answer 5

GDP will increase as the activity is now included in official GDP measures. Previously household production by the housewife was not included. This is a good example of home production.

Question 6

I bought my house for £100000. I have just sold it for £200000 and the estate agent received a 10% commission from the buyer. What is the effect on GDP?

Answer 6

The pure transactions of the house is not included in GDP as used goods are not included in the calculation of GDP. However, the 10%
commission of £20000 counts as value added and is hence included in
GDP.

Question 7

What is GDP a measure of?

Answer 7

aggregate output

Question 8

What are the three different ways to look at GDP?

Answer 8

1) the sum of value added (VA)

2) the sum of final uses

3) the sum of the total generation of income in the economy

Question 9

What are some examples of things that GDP does not include? (9)

Answer 9

Voluntary work
Informal sector
Sustainability
Equality
Ethics
Happiness
Work vs Leisure
Environmental degradation
Illegal activity