Week 1

Question 1

What are the 3 measures of GDP?

Answer 1

1. Production
2. Income
3. Expenditure

Question 2

A farmer grows oranges, hiring workers to pick them and then sells them at the stand.
What would the production measure be?

Answer 2

The total number of oranges produced

Question 3

A farmer grows oranges, hiring workers to pick them and then sells them at the stand.
What would the income measure be?

Answer 3

The total income earned in the economy: the income for the workers and the extra profit taken as income by the farmer

Question 4

A farmer grows oranges, hiring workers to pick them and then sells them at the stand.
What would the expenditure measure be?

Answer 4

The total purchase of oranges at the stand (given that all the oranges produced were sold)

Question 5

What is the Fundamental Principle?

Answer 5

Production = Expenditure = Income

Question 6

What is the National Income Identity associated with Expenditure approach?

Answer 6

Y = C + I + G + NX

Y - GDP
C - Consumption
I - Investment
G - Government Purchases
NX - Net Exports (Exports - Imports)

Question 7

What is the NX AKA? What is it called when NX<0?

Answer 7

• Trade Balance
• Trade Deficit

Question 8

How is GDP calculated via the Income Approach?

Answer 8

The summation of all income earned in the economy
- Includes depreciation on the income

Question 9

What are the specifics of the Production Approach?
What is value added?

Answer 9

Only the final sale of Goods+Services counts towards GDP
Value Added = Rev - Intermediate Products

Question 10

What is included in GDP and what isn’t?

Answer 10

• Only Goods+Services that transact in markets count (so not time)
• Doesn’t inclue health or changes in natural resources

Question 11

What is nominal GDP?
How is nominal GDP measured?

Answer 11

• GDP given in current prices, without adjustment for inflation
• Nominal GDP = price level × real GDP

Question 12

What can cause Nominal GDP to change?

Answer 12

-> If price level changes
-> If real GDP changes

Question 13

What are the 2 ways to compute changes and what are there specific?

Answer 13

1. Laspeyres Index
   - Using initial prices
2. Paasche Index
   - Using final prices

Question 14

What is the 3rd way to compute changes?

Answer 14

Chain Weighting/ Fisher:
-> Averages Laspeyres and Paasche growth rates

Question 15

What is the eq regarding the change in percentage in nominal GDP?

Answer 15

Δ% Nominal GDP ≈ (Δ% Price Level) + (Δ% Real GDP)

Question 16

What is (Δ% Price Level) also known as?

Answer 16

The inflation rate

Question 17

How can we compare GDP across countries?

Answer 17

By using price levels from other countries in the calculations of nominal GDP for another country