Measuring Domestic Output and National Income

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Measuring Domestic Output and National Income
2013-09-22 13:23:44
Economics GDP

Gross Domestic Product
Show Answers:

  1. What is the definition of GDP?
    The total market value of all goods and services. GDP is a measure of Aggregate Output.
  2. What are the 3 types of transactions that would not be included in GDP?
    Pubic Transfer Payments- Welfare, Social Security

    Private Transfer Payments- Parent to Child

    Stock and Bond Market Transactions- Include the payment to the Broker.
  3. What are the Components of GDP using the expenditures approach?
    • 1) Consumption by Households
    • 2) Investment by Businesses
    • 3) Government Purchases
    • 4) Expenditures by Foreigners
  4. 1) Consumption by Households
    Personal Consumption Expenditures (C)
    Aggregate Spending on:
    • Durable consumer goods
    • Non-durable consumer goods
    • Consumer Expenditures for Services
  5. 2) Investment by Businesses
    Gross Domestic Investment (Ig)
    Aggregate Spending by Business inside the Country on:
    • Machinery, Equipment, Tools
    • All Construction
    • Changes in Inventories
    • Creation of new Capital Assets
  6. 3) Government Purchases (G)
    • Expenditures for Goods & Services
    • Expenditures for Social Capital-Schools, Highways
    • Does not include government transfer payments
  7. 4) Expenditures by Foreigners 
    Net Exports (Xn)
    • Imports
    • exports
  8. Gross Domestic Product=
    C + Ig + G + Xn
  9. What is Nominal GDP?
    Nominal GDP is a dollar measure of current prices.
  10. What is Real GDP?
    Reflection in changes in prices. GDP is a dollar measure of production,
  11. What are the Shortcomings of GDP?
    • Non market Activities-
    • Services of homemakers not counted

    • Leisure-
    • Value of leisure underestimated

    • Improved Product Quality-
    • Not counted

    • GDP and the Environment-
    • Social and environmental costs not counted

    Composition and Distribution of Output- Does not measure well being

    • The Underground Economy-
    • Not counted