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Questions and Answers
What does Real GDP measure in comparison to Nominal GDP?
What does Real GDP measure in comparison to Nominal GDP?
- Goods and services at current prices
- Goods and services at discounted prices
- Goods and services at specific/base year prices (correct)
- Goods and services at a future year's prices
How is the GDP deflator calculated using Real GDP and Nominal GDP?
How is the GDP deflator calculated using Real GDP and Nominal GDP?
- GDP deflator = Nominal GDP - Real GDP
- GDP deflator = Nominal GDP * 100 / Real GDP (correct)
- GDP deflator = Nominal GDP + Real GDP
- GDP deflator = Nominal GDP / Real GDP
What does the GDP deflator measure?
What does the GDP deflator measure?
- Change in real GDP not influenced by price levels
- Inflation rate based on real GDP changes
- Change in nominal GDP not attributable to real changes (correct)
- Change in real GDP attributed to price changes
How is the inflation rate computed using the GDP deflator?
How is the inflation rate computed using the GDP deflator?
What does the Circular Flow of Income illustrate?
What does the Circular Flow of Income illustrate?
How do households interact with firms in the Circular Flow model?
How do households interact with firms in the Circular Flow model?
What is the formula for calculating per capita income?
What is the formula for calculating per capita income?
What is the formula for calculating disposable income?
What is the formula for calculating disposable income?
How is net national income calculated?
How is net national income calculated?
What does Real GDP aim to measure?
What does Real GDP aim to measure?
Which component is excluded from personal income to derive disposable income?
Which component is excluded from personal income to derive disposable income?
How does per capita income relate to national output measurement?
How does per capita income relate to national output measurement?
What does Gross National Product (GNP) represent?
What does Gross National Product (GNP) represent?
How is Net National Product (NNP) calculated?
How is Net National Product (NNP) calculated?
Which concept is often used as a measure of the standard of living?
Which concept is often used as a measure of the standard of living?
What does National Income represent?
What does National Income represent?
Which of the following equations correctly defines GNP?
Which of the following equations correctly defines GNP?
How does Per Capita Income relate to a country's population?
How does Per Capita Income relate to a country's population?
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Study Notes
Measurement of National Output
- Gross National Product (GNP) is the market value of all final goods and services produced within a given period by factors of production owned by a country's citizens, regardless of where the output is produced.
- GNP = GDP + Factor income from the rest of the world − Payments of factor income to the rest of the world
Net National Product (NNP)
- NNP is a nation's total product (GNP) minus what is required to maintain the value of its capital stock
- NNP = GNP − Depreciation
- Depreciation is the decline in value of capital assets like machinery and equipment over time
National Income
- National Income is the total income earned by the factors of production owned by a country's citizens
- National Income is often derived using the income approach
- National Income is approximately the same value as Net National Product (NNP) except for statistical discrepancies and data measurement errors
Per Capita Income
- Per Capita Income is the ratio of a country's income to its population
- Per Capita Income gives the value of the average income per person
- Per Capita Income is often used as a measure of the standard of living
- Per capita income = National income ÷ Total population
Personal Income and Disposable Income
- Personal Income is the total income that goes to households
- Personal Income = National income − Indirect business taxes − Corporate income taxes − Retained earnings + Transfer payments
- Disposable Income is the income that remains after direct taxes have been deducted from the income of households
- Disposable Income = Personal income − Personal income taxes
Real GDP vs Nominal GDP
- Real GDP computes the value of goods and services in a year when valued at a specific/base year (and not necessarily at current prices)
- Nominal GDP measures the production of goods and services valued at current prices
- Real GDP helps track changes in economic productivity by isolating changes in output from changes in prices
GDP Deflator
- GDP Deflator measures the current level of prices relative to the level of prices in the base year
- GDP Deflator = Nominal GDP × 100 / Real GDP
- GDP Deflator is used to monitor the average level of prices in the economy
- GDP Deflator helps compute the inflation rate [rise in the price level]
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