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Questions and Answers
Which country had a higher GDP per capita (PPP) in 2022?
Which country had a higher GDP per capita (PPP) in 2022?
China accounted for a larger percentage of the world economy using market exchange rates than using PPP exchange rates.
China accounted for a larger percentage of the world economy using market exchange rates than using PPP exchange rates.
True
What is one advantage of using PPP exchange rates in economic comparisons?
What is one advantage of using PPP exchange rates in economic comparisons?
Enables volume comparison of economy size
In 2022, the GDP (current int.$, trillions) of the United States was ______.
In 2022, the GDP (current int.$, trillions) of the United States was ______.
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Match the following countries with their respective GDP (current int.$, trillions) in 2022:
Match the following countries with their respective GDP (current int.$, trillions) in 2022:
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What does GDP measure?
What does GDP measure?
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GNI is equal to GDP plus Net Property Income Abroad (NPIA).
GNI is equal to GDP plus Net Property Income Abroad (NPIA).
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Explain the difference between real and nominal output.
Explain the difference between real and nominal output.
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GDP per capita is calculated as GDP divided by _____ .
GDP per capita is calculated as GDP divided by _____ .
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Match the terms with their definitions:
Match the terms with their definitions:
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Why is purchasing power parity (PPP) important for international comparisons?
Why is purchasing power parity (PPP) important for international comparisons?
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GDP per capita is a less useful metric than total GDP for comparing the economic wealth of countries.
GDP per capita is a less useful metric than total GDP for comparing the economic wealth of countries.
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What could indicate a high GNI per capita in a country?
What could indicate a high GNI per capita in a country?
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What does Nominal GDP use to calculate its value?
What does Nominal GDP use to calculate its value?
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Real GDP calculations use current prices.
Real GDP calculations use current prices.
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What is inflation?
What is inflation?
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To make international comparisons of GDP, values need to be converted to a common __________.
To make international comparisons of GDP, values need to be converted to a common __________.
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What is one issue with using the Nominal Exchange Rate (NER) for GDP comparisons?
What is one issue with using the Nominal Exchange Rate (NER) for GDP comparisons?
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Match the following terms with their definitions:
Match the following terms with their definitions:
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A Purchasing Power Parity exchange rate controls for price level differences between countries.
A Purchasing Power Parity exchange rate controls for price level differences between countries.
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Why is controlling for inflation important when comparing GDP values?
Why is controlling for inflation important when comparing GDP values?
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What is the implied PPP rate based on the price of a Big Mac in the UK and US?
What is the implied PPP rate based on the price of a Big Mac in the UK and US?
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The Big Mac price in China, when converted to US dollars, is lower than in the UK.
The Big Mac price in China, when converted to US dollars, is lower than in the UK.
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What does PPP stand for?
What does PPP stand for?
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The GDP of China at purchasing power parity in 2022 is ______ trillion international dollars.
The GDP of China at purchasing power parity in 2022 is ______ trillion international dollars.
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Match the country to its Big Mac price in dollars:
Match the country to its Big Mac price in dollars:
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Which of the following statements is true regarding GDP figures using market exchange rates?
Which of the following statements is true regarding GDP figures using market exchange rates?
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The GDP of the United States at current prices is greater than that of China.
The GDP of the United States at current prices is greater than that of China.
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What is the Big Mac price in South Africa in local currency?
What is the Big Mac price in South Africa in local currency?
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Which approach to measuring GDP involves summing the value added produced by each sector in an economy?
Which approach to measuring GDP involves summing the value added produced by each sector in an economy?
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The income approach to GDP measurement sums all profits and salaries generated by production activity.
The income approach to GDP measurement sums all profits and salaries generated by production activity.
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What is the formula for calculating GDP using the expenditure approach?
What is the formula for calculating GDP using the expenditure approach?
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To avoid __________ in GDP calculations, the value of intermediate goods should not be counted.
To avoid __________ in GDP calculations, the value of intermediate goods should not be counted.
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Match the sectors of Economy A with their corresponding output prices:
Match the sectors of Economy A with their corresponding output prices:
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How is the value added within each sector calculated?
How is the value added within each sector calculated?
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Real GDP is calculated using the prices of goods from the current year.
Real GDP is calculated using the prices of goods from the current year.
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What should be used to compare GDP values between years?
What should be used to compare GDP values between years?
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Study Notes
ECN102 World Economy - Week 2
- Course Topic: Measuring Output and making international comparisons
- Instructor: Professor Rachel Male
-
Learning Objectives:
- Define the difference between real and nominal output, and explain which gives a better measure of output.
- Calculate GDP using the output (value added), income, and expenditure measures.
- Explain why a purchasing power parity (PPP) exchange rate should be used for making international comparisons of GDP.
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Measuring Output:
- Real versus nominal variables.
- Output as value added.
- Output, income, and expenditure measures.
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Making International Comparisons:
- Purchasing power parity (PPP).
-
GDP and GNI:
- GDP measures the value of final goods and services produced within a country over a specified period.
- GNI measures total income of all residents of a nation wherever they produce or earn this income.
- GNI = GDP + Net Property Income from Abroad (NPIA)
- GDP per capita is calculated by dividing total output by total population.
-
GDP per capita (Ireland):
- Ireland's GDP per capita (PPP, constant 2021 international $) is $114,120.
- This ranks Ireland as the 3rd richest country.
- A large number of foreign investors in Ireland impacts GNI per capita.
-
GDP Measurement Methods:
- Production approach: Sum of value added produced by each sector in an economy.
- Income approach: Sum of all income (profits and salaries) generated by production activity.
- Expenditure approach: Sum of expenditure on final goods and services within the economy (Y = C + I + G + (X – M)).
-
Intermediate Goods and Double Counting:
- Tyres (for cars) are intermediate goods, not final goods.
- Accounting for intermediate goods avoids double-counting issues in GDP calculations.
-
Nominal vs. Real GDP:
- Nominal GDP uses current prices, while Real GDP uses base year prices for comparisons across time.
- Choice of price affects the value of GDP calculations.
-
Inflation:
- Inflation is a sustained increase in the overall price level.
- As prices rise, currency purchasing power decreases.
- Controlling for inflation is important when comparing GDP values to identify changes in output quantity.
-
International Comparisons:
- Each country's GDP is measured in its local currency.
- Need to convert to a common currency (e.g., US dollar) to compare internationally.
- Requires an exchange rate.
-
Market Exchange Rate (NER):
- The rate at which one currency can be exchanged for another on the foreign exchange market.
- Subject to fluctuations.
- Depreciation of a currency reduces GDP value (after conversion).
- NER reflects only tradeable goods and services.
-
Purchasing Power Parity (PPP):
- PPP exchange rate controls for price level differences between countries.
- Calculated as a ratio of prices of a similar basket of goods/services between countries.
- Allows for comparisons of relative purchasing power in different countries.
- Example: UK Big Mac price relative to US Big Mac price.
-
PPP Exchange Rate Advantages/Disadvantages:
- Advantages: Enables volume comparison of economy size
- Disadvantages: Estimation of PPP exchange rate is complex; Data availability/quality issues.
-
Next Week's Topic: Inequality, Poverty, and Economic Growth
- Problems with using GDP as a welfare measure.
- Alternative measures.
- Relationship between economic growth, inequality, and poverty.
- Measuring inequality.
- Poverty traps.
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Description
This quiz covers key concepts related to measuring output in the world economy, including the distinction between real and nominal output, and the calculation of GDP through various measures. It also emphasizes the importance of purchasing power parity for international GDP comparisons. Test your understanding of these crucial economic indicators and their applications.
