Macroeconomics: Understanding GDP and Growth Rate

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Questions and Answers

What time frame does the annual measure of GDP encompass?

  • 1st July to 30th June
  • 1st March to 28th February
  • 1st April to 31st March (correct)
  • 1st January to 31st December

How is the GDP growth rate calculated?

  • GDP of the current year minus GDP of the previous year, divided by GDP of the previous year (correct)
  • Difference between nominal and real GDP
  • Percentage of increase in prices over a financial year
  • Total production in a year divided by total production of the base year

What distinguishes nominal GDP from real GDP?

  • Nominal GDP uses base year prices, while real GDP uses current prices.
  • Nominal GDP is calculated using current prices, while real GDP is adjusted for inflation. (correct)
  • Nominal GDP accounts for inflation, while real GDP does not.
  • Nominal GDP is measured annually, while real GDP is measured quarterly.

If the GDP at the end of 2020 was $2.67 Trillion and the GDP at the end of 2021 was $3.18 Trillion, what was the GDP growth rate for 2021?

<p>19.1% (D)</p> Signup and view all the answers

What was the new base year adopted by the government for national accounts in January 2015?

<p>2011-12 (B)</p> Signup and view all the answers

What are the components of the national spending approach to GDP?

<p>Consumption, investment, government purchases, net exports (B)</p> Signup and view all the answers

Which factor is NOT included in the factor income approach to GDP?

<p>Investment (A)</p> Signup and view all the answers

How is net exports defined in the context of GDP?

<p>Total exports less total imports (A)</p> Signup and view all the answers

Which of the following best describes consumer durables?

<p>Long-lasting goods such as cars and appliances (D)</p> Signup and view all the answers

Which element does NOT fall under government purchases in the GDP calculation?

<p>Social welfare payments (C)</p> Signup and view all the answers

What does the variable 'C' represent in the national spending approach to GDP?

<p>Consumption goods and services (D)</p> Signup and view all the answers

What is the main focus of India's approach to estimating GDP?

<p>National spending (B)</p> Signup and view all the answers

Which category does NOT belong to the classification of consumption of goods and services?

<p>Financial investments (C)</p> Signup and view all the answers

What does the GDP deflator indicate about inflation when the value is above 100?

<p>Prices have increased compared to the base year. (A)</p> Signup and view all the answers

How is GDP per capita calculated?

<p>Total GDP divided by the population. (D)</p> Signup and view all the answers

What was the GDP deflator for India in 2021?

<p>168.35 (B)</p> Signup and view all the answers

What does Real GDP growth per capita signify?

<p>The growth of individual's wealth after considering population growth. (D)</p> Signup and view all the answers

Which country had a Real GDP per capita growth showing wealth increase faster than India in 2021?

<p>United States (C)</p> Signup and view all the answers

What was India's population growth rate in 2021?

<p>11.91% (D)</p> Signup and view all the answers

How can changes in living standards be reflected in economic terms?

<p>By looking at GDP growth rates adjusted for inflation. (B)</p> Signup and view all the answers

Which of the following countries had the lowest GDP per capita change in 2021?

<p>Afghanistan (B)</p> Signup and view all the answers

What is GNI a more comprehensive measure of compared to GDP?

<p>Economic development considering all income earned (D)</p> Signup and view all the answers

What is the expected GNI per capita range for India to qualify as an upper-middle-income country?

<p>$4,466 - $13,845 (D)</p> Signup and view all the answers

Which method smooths out fluctuations in GNI data for international comparisons?

<p>Atlas method (A)</p> Signup and view all the answers

Which country is classified as a lower-middle-income country?

<p>India (D)</p> Signup and view all the answers

What does GNI per capita indicate?

<p>Average income and potential living standards (C)</p> Signup and view all the answers

What is the GNI projection for India to achieve upper-middle-income status?

<p>Fiscal years 2033 to 2036 (A)</p> Signup and view all the answers

What is the purpose of including Net Income from Abroad in the GNI calculation?

<p>To reflect remittances and foreign investments (D)</p> Signup and view all the answers

Which of the following countries is an example of a high-income country?

<p>Germany (A)</p> Signup and view all the answers

In which area are people in India said to have become comparatively richer?

<p>Compared to Chad and Micronesia (C)</p> Signup and view all the answers

What is the GNI per capita threshold for low-income countries?

<p>Less than $1,135 (A)</p> Signup and view all the answers

What was the highest percentage of government purchases in India compared to GDP recorded between 2000 and 2021?

<p>14.00% (C)</p> Signup and view all the answers

During which year did India's government purchases as a percentage of GDP first fall below 10%?

<p>2009 (B)</p> Signup and view all the answers

Which of the following years shows a decrease in India's government purchases compared to the previous year?

<p>2010 (C)</p> Signup and view all the answers

Which of the following BRICS nations had consistently higher government purchases as a percentage of GDP than India between 2000 and 2021?

<p>China (B)</p> Signup and view all the answers

How did India's government purchases generally trend from 2000 to 2021?

<p>Fluctuating with occasional peaks (B)</p> Signup and view all the answers

In which year did the government purchases of India show the most significant increase compared to the previous year?

<p>2016 (B)</p> Signup and view all the answers

Which factor is NOT listed as affecting government purchases?

<p>Political Stability (A)</p> Signup and view all the answers

How did India's government purchases compare to developed economies based on the content?

<p>Consistently lower (A)</p> Signup and view all the answers

What metric is used to measure consumption expenditure in relation to GDP?

<p>Consumption Expenditure (% of GDP) (D)</p> Signup and view all the answers

Which factor does NOT significantly impact consumption in India?

<p>Foreign Exchange Rates (C)</p> Signup and view all the answers

In the context of investments, what does 'Public Investment' refer to?

<p>Government spending on infrastructure and public services (A)</p> Signup and view all the answers

Which of the following categories is NOT a classification of investments?

<p>Consumer Durable Goods Investment (C)</p> Signup and view all the answers

What was the percentage of India's investments in relation to GDP in 2021?

<p>30.17% (D)</p> Signup and view all the answers

Which of the following factors can negatively affect investment levels?

<p>High Interest Rates (C)</p> Signup and view all the answers

Which country is shown to have a higher investment percentage than India in recent years?

<p>China (A)</p> Signup and view all the answers

What would be a major contributor to the increase in consumption expenditure in India?

<p>Rise in Disposable Income (D)</p> Signup and view all the answers

Which of the following is a potential result of improved access to credit in India?

<p>Increased Investment in Real Estate (D)</p> Signup and view all the answers

What is the significance of comparing India's consumption with BRICS nations?

<p>To evaluate India's economic growth relative to its peers (C)</p> Signup and view all the answers

Flashcards

GDP Growth Rate

The percentage change in a country's GDP over a specific period, indicating the rate of production increase or decrease.

GDP Calculation (growth rate)

Calculated by finding the percentage change between GDP values at the end of two different periods.

Nominal GDP

The value of a country's economic output calculated using current prices.

Real GDP

The value of a country's economic output calculated using constant (base year) prices, adjusted for inflation.

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Base Year

The year used as a reference point to calculate real GDP, holding prices constant over time.

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Comparing Nominal and Real GDP

Nominal GDP reflects current prices, while Real GDP adjusts for changes in prices over time, allowing for a more accurate comparison of economic output across different periods.

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GDP Deflator

A price index that measures the change in price of goods and services in a given economy over a period of time. It compares nominal GDP to real GDP.

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Nominal GDP

The total value of all goods and services produced in an economy, calculated using current prices.

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Real GDP

The total value of all goods and services produced in an economy, adjusted for inflation using a base year's prices.

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GDP Per Capita

A country's GDP divided by its population, giving a measure of average economic output per person.

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Real GDP Growth Per Capita

The percentage change in real GDP per capita over a period, reflecting improvements in living standards.

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Inflation

A sustained increase in the general price level of goods and services in an economy over a period.

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GDP per Capita

The average income earned by a person in a country, calculated by dividing the country's GDP by its population.

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GNI

Gross National Income, a measure of a country's total income, considering income from abroad and payments to foreign entities.

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Atlas Method

A method used to stabilize GNI data, smoothing out fluctuations caused by exchange rate volatility.

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Income Group

A categorization of countries based on their per capita GNI, indicating different levels of economic development.

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Low-income Country

A country with a GNI per capita below $1,135.

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Lower-middle-income Country

A country with a GNI per capita between $1,136 to $4,465.

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Upper-middle-income Country

A country with a GNI per capita between $4,466 and $13,845.

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High-income Country

A country with a GNI per capita above $13,845.

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India's Income Target

India aims to achieve upper-middle-income status between 2033 and 2036, with projected GNI per capita between $4,466 - $13,845.

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Factor Income Approach

GDP calculated by summing up all factor payments (wages, rent, interest, profit).

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National Spending Approach

GDP calculated as the sum of consumption, investment, government spending, and net exports.

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Consumption (C)

Market value of goods and services bought by households.

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Investment (I)

Market value of new capital goods purchased.

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Government Purchases (G)

Market value of goods and services bought by the government.

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Net Exports (NX)

Exports minus imports.

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GDP (Y)

Total market value of all final goods and services produced in an economy.

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Consumer Durables

Goods that last a long time.

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Consumer Semi-Durables

Goods that last for some time.

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Consumer Non-Durables

Goods that don't last long.

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Consumption Expenditure (% of GDP)

The percentage of a country's Gross Domestic Product (GDP) spent on goods and services.

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Factors impacting Consumption

Various elements influencing how much individuals and a nation spend on goods and services, like income, job availability or government policies.

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Investment

The addition to the total stock of capital goods within a nation's economy over a given time.

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Classification of Investments

Different types of investment activities, including business fixed investment, inventory investment, residential construction, and public investments.

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India’s Investments (Trend)

India's investment trends (percentage of GDP) over a period of time.

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Factors impacting Investment

The key economic forces affecting a country's investment levels, including interest rates and business risk.

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Government Purchases (% of GDP)

The percentage of a country's Gross Domestic Product (GDP) spent by the government.

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India's Government Purchases

The amount of money India's government spends as a percentage of its total national output (GDP) over time.

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BRICS Nations Govt. Purchases

Government spending as a percentage of GDP for Brazil, Russia, India, China, and South Africa.

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Factors impacting Govt Purchases

The reasons behind changes in a nation's government spending, such as economic or political conditions.

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Market Potential

The expected market size and economic conditions that could influence the demand and revenue potential for government purchases.

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Technological Advancement

New inventions or technologies that can impact government spending decisions.

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Market Size

The overall size of a particular market—how many people or products are in it.

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Economic Conditions

The state of a nation's economy, such as unemployment, inflation or growth rate, affecting the budget policies.

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Study Notes

Macroeconomics: GDP

  • GDP is the market value of all final goods and services produced within a country in a year.
  • GDP is calculated quarterly and annually by the Central Statistics Office (NSO) in India.
  • The annual measure of GDP encompasses a financial year from April 1st to March 31st.
  • GDP measures a country's total output including millions of products and services.
  • GDP does not make sense to just add up quantities, it uses market values to determine worth.
  • GDP calculations can be trickier the longer the time period compared.
  • In 2000, for example, economists had to consider the price of a computer.
  • The more years that pass, the more difficult it is to determine how to adjust for quality changes.

GDP Growth Rate

  • GDP tells us how much a country produced in a given year.
  • The growth rate of GDP shows how rapidly production is rising or falling over time.
  • To compute the growth rate from 2020 to 2021, use GDP numbers from the end of each year.
  • Formula: (GDP2021 - GDP2020) / GDP2020 * 100 = GDP Growth rate for 2021

Nominal vs. Real GDP

  • Nominal GDP = Quantity produced * Current Price
  • Real GDP = Quantity * Base Year Prices
  • Real GDP is adjusted for inflation to reflect real changes in production
  • The government switched to a new base year of 2011-12 in January 2015, replacing 2004-05

GDP Deflator

  • The GDP deflator is the ratio of nominal to real GDP, multiplied by 100
  • A price index that measures inflation
  • Formula: (Nominal GDP / Real GDP) * 100 = GDP Deflator
  • 2021 prices were about 68.35% higher than 2011 prices

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