Podcast
Questions and Answers
Why is it necessary to measure output in terms of value rather than just quantities in macroeconomics?
Why is it necessary to measure output in terms of value rather than just quantities in macroeconomics?
- Value automatically accounts for inflation.
- Quantities do not reflect consumer preferences.
- It allows for the aggregation of diverse goods and services. (correct)
- Quantities are too difficult to track accurately.
In the circular flow of income model, if injections (investment, government spending, and exports) exceed leakages (saving, taxes, and imports), what is the likely impact on the income flow?
In the circular flow of income model, if injections (investment, government spending, and exports) exceed leakages (saving, taxes, and imports), what is the likely impact on the income flow?
- The income flow will remain constant.
- The income flow will decrease.
- The income flow will fluctuate unpredictably.
- The income flow will increase. (correct)
Which of the following best describes the relationship between national income and aggregate output?
Which of the following best describes the relationship between national income and aggregate output?
- Aggregate output is a broader measure that includes national income.
- National income and aggregate output can be used interchangeably. (correct)
- National income is a component of aggregate output.
- National income and aggregate output represent different concepts with no direct relation.
Which activity is directly part of measuring economic activity?
Which activity is directly part of measuring economic activity?
What is the primary reason why understanding national income and aggregate output is useful for an economy?
What is the primary reason why understanding national income and aggregate output is useful for an economy?
When calculating the 'value' of a good or service to determine aggregate output, what elements are considered?
When calculating the 'value' of a good or service to determine aggregate output, what elements are considered?
Which of the following situations indicates an increasing income and output for an economy?
Which of the following situations indicates an increasing income and output for an economy?
Why do economists measure national income?
Why do economists measure national income?
What are the major injections into of the circular flow of income?
What are the major injections into of the circular flow of income?
What are the major leakages from the circular flow of income?
What are the major leakages from the circular flow of income?
Flashcards
National Income Accounting
National Income Accounting
Measurement of an economy's national income or the value of output.
National Output
National Output
The total output of an economy.
Aggregate Output
Aggregate Output
The total output of an economy, also called national output.
Leakages (circular flow)
Leakages (circular flow)
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Injections (circular flow)
Injections (circular flow)
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Gross Domestic Product (GDP)
Gross Domestic Product (GDP)
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Gross National Income (GNI)
Gross National Income (GNI)
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Real GDP and Real GNI
Real GDP and Real GNI
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Real GDP/GNI per capita
Real GDP/GNI per capita
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GDP/GNI per capita (PPP)
GDP/GNI per capita (PPP)
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Study Notes
- Leakages (saving, taxes, imports) and injections (investment, government spending, exports) in the circular flow of income do not have to be equal.
- If injections are smaller than leakages, the income flow decreases; if injections exceed leakages, the income flow increases
Measures of Economic Activity
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Measurement of economic activity involves measuring a nation's national income or the value of its output, it is referred to as national income accounting
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National output is also known as aggregate output, representing total output
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Knowing national income and aggregate output is useful for:
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Assessing an economy's performance over time (whether income and output are increasing or decreasing)
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Making comparisons of income and output with other economies
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Establishing a basis for policies to meet economic objectives
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Macroeconomics measures output in terms of 'value' rather than quantities
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The value of a good is its quantity multiplied by its price
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Measuring output in money terms overcomes the difficulty of adding up various goods and services
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Macroeconomics output is always expressed in value terms
How Economic Activity is Measured
- In the circular flow of income model, the value of aggregate output equals the total income generated, which equals expenditures made to purchase that output.
- National income and the value of aggregate output are used interchangeably
- The principle of equivalency will be used to see how national income or the value of aggregate output is measured
Learning Objectives
After reviewing this, you should be able to:
- Define all the bold terms
- Explain the expenditure, income, and output approaches to measure GDP in national income accounting and demonstrate their equivalence using the circular flow of income model
- Explain nominal Gross Domestic Product (GDP)
- Explain nominal Gross National Income (GNI)
- Elucidate real GDP and real GNI
- Know real GDP and real GNI per person (per capita)
- Identify real GDP and real GNI per person (per capita) at purchasing power parity (PPP)
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