Measurement of National Output in Economics

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What does Real GDP measure in comparison to Nominal GDP?

Goods and services at specific/base year prices

How is the GDP deflator calculated using Real GDP and Nominal GDP?

GDP deflator = Nominal GDP * 100 / Real GDP

What does the GDP deflator measure?

Change in nominal GDP not attributable to real changes

How is the inflation rate computed using the GDP deflator?

Inflation rate = (GDP deflator in year 2 - GDP deflator in year 1) / 100

What does the Circular Flow of Income illustrate?

Income equals expenditure

How do households interact with firms in the Circular Flow model?

Households buy goods and services from firms

What is the formula for calculating per capita income?

Per capita income = National income / Total population

What is the formula for calculating disposable income?

Disposable income = Personal income - Personal income taxes

How is net national income calculated?

Net national income = National income - Depreciation

What does Real GDP aim to measure?

The nation's productivity holding prices constant

Which component is excluded from personal income to derive disposable income?

Personal income taxes

How does per capita income relate to national output measurement?

Per capita income indicates the population's share of the national output

What does Gross National Product (GNP) represent?

Market value of all final goods and services produced within a given period by factors of production owned by a country’s citizens

How is Net National Product (NNP) calculated?

GNP - Depreciation

Which concept is often used as a measure of the standard of living?

Per Capita Income

What does National Income represent?

Total income earned by factors of production owned by a country's citizens

Which of the following equations correctly defines GNP?

GNP = GDP + Factor income from the rest of the world - Payments of factor income to the rest of the world

How does Per Capita Income relate to a country's population?

It is the ratio of a country’s income to its population

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]

This quiz covers the concepts related to measuring national output, focusing on topics such as Gross National Product (GNP) and its components. Test your understanding of national income accounting and GDP calculations.

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