National Income and GDP Overview
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Questions and Answers

What is one of the positive effects of economic growth?

  • Higher unemployment rates
  • Increased poverty levels
  • Improved standard of living (correct)
  • Decreased production potential

    • Economic growth always leads to an increase in unemployment.

    False

    Name one environmental issue that can arise from rapid economic growth.

    Pollution

    Economic growth enhances the economy's ability to produce goods and services, shifting the production possibility curve ______.

    <p>outward</p> Signup and view all the answers

    Match the following impacts of economic growth with their descriptions:

    <p>Employment = Reduces unemployment and increases government revenue Standard of Living = Allows for better quality goods and services Poverty = Can reduce absolute poverty if benefits are distributed Inflation = Can lead to rising costs for consumers</p> Signup and view all the answers

    What does GDP measure?

    <p>Total monetary value of all goods and services produced within a country</p> Signup and view all the answers

    Rising GDP guarantees improved living standards.

    <p>False</p> Signup and view all the answers

    Name one limitation of GDP as a measure of growth.

    <p>Inflation, population changes, or non-market activities.</p> Signup and view all the answers

    The economic cycle consists of four phases: Boom, Downturn, __________, and Recovery.

    <p>Recession/Depression</p> Signup and view all the answers

    Which of the following is true about Real GDP?

    <p>It adjusts for inflation to provide a clearer picture of output changes.</p> Signup and view all the answers

    Match each economic cycle phase with its characteristics:

    <p>Boom = Rapid GDP growth and job creation Downturn = Slower growth and rising unemployment Recession/Depression = Significant decline in GDP and high unemployment Recovery = GDP begins to rise and increases demand</p> Signup and view all the answers

    What is the formula for National Income?

    <p>The total output must equal the total income paid to factors of production.</p> Signup and view all the answers

    Imports are included in GDP calculations.

    <p>False</p> Signup and view all the answers

    Study Notes

    National Income

    • National income is the monetary value of all goods and services produced within an economy in a year.
    • Economic growth is indicated by rising national income.
    • Production factors (labor, capital etc.) are rewarded with wages, interest, rent, and profit. Total output equals total income paid.
    • National income can also be viewed as a measure of income, output, or expenditure.

    Gross Domestic Product (GDP)

    • GDP is the standard measure of national income.
    • It's the total monetary value of all goods and services produced within a country in a year.
    • GDP measures only final goods to avoid double counting.
    • GDP considers domestic sales and exports, factoring out imports.
    • GDP allows comparisons of economic growth between countries.

    Limitations of GDP

    • Inflation: Nominal GDP can be misleading due to inflation; real GDP accounts for inflation.
    • Population Changes: GDP growth does not always mean improved living standards when population growth outpaces it. Real GDP per capita addresses this.
    • Statistical Errors: Data collection errors can impact GDP accuracy.
    • Home-Produced Goods: Non-market activities (e.g., household labor) are excluded from GDP.
    • Hidden Economy: Unreported economic activity (legal and illegal) isn't included.
    • Living Standards: Income inequality and environmental factors can impact living standards even with rising GDP.
    • External Costs: GDP doesn't factor in negative externalities (pollution, resource depletion).

    The Economic Cycle

    • The economic cycle shows fluctuations in GDP growth.
    • Stages include:
    • Boom: Rapid growth, high demand, job creation, rising prices.
    • Downturn: Slower growth, rising unemployment, reduced demand.
    • Recession/Depression: Significant decline, high unemployment, low confidence.
    • Recovery: GDP rises, demand increases, unemployment decreases.

    Impact of Economic Growth

    • Positive Impacts:
    • Employment: Rising employment, lower unemployment, and higher government revenue.
    • Standard of Living: Higher incomes, better goods/services, more leisure, longer lifespan.
    • Poverty: Reduced poverty if benefits are distributed evenly.
    • Productive Potential: Economy's production ability improves, illustrated by outward shift of production possibility curve.
    • Negative Impacts:
    • Inflation: Full employment and demand increase can cause demand-pull inflation.
    • Environment: Rapid growth can lead to pollution, resource depletion, and habitat loss. Sustainable growth is crucial.

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    Description

    This quiz explores the concepts of national income and Gross Domestic Product (GDP), including their definitions, significance, and limitations. Participants will learn how GDP serves as a measure of economic growth and what factors influence these measures. Ideal for students studying economics or anyone interested in understanding national income metrics.

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