Deck 7: Measuring the Economys Output

Question 1

The next four questions refer to the following price and output data over a five-year period for an economy that produces only one good.Assume that year 2 is the base year.

Answer 1

(a)If year 2 is the base year,give the price index for year 3.
(b)Give the nominal GDP for year 4.
(c)What is the real GDP for year 4?
(d)Tell which years you would deflate nominal GDP and which years you would inflate nominal GDP in finding real GDP.
(a)4/3 × 100 = 133.
(b)Nominal GDP = 36 × $5 = $180.
(c)Real GDP = $180/167 = $107.78.
(d)You would deflate nominal GDP for years where the price index is more than 100,that is,for years 3,4,and 5.You would inflate the nominal GDP for year 1 since the price index is less than 100 relative to the base year 2.

Question 2

What is the definition of GDP? How would the value of output produced at a Canadian-owned factory in Canada and a foreign-owned factory in Canada be treated in GDP accounting?

Answer 2

GDP is a measure of the total market value of all final goods and services produced within a country in a year period.The value of output produced at a Canadian-owned factory in Canada and a foreign-owned factory in Canada would both be treated as part of domestic output in GDP accounting.Thus,GDP represents all domestic production.

Question 3

Define GDP and its characteristics.

Answer 3

GDP is the total market value of all final goods and services produced in the economy in one year.It is a monetary measure that excludes nonproductive transactions,such as the value of stock or bond sales,the sales of used goods,and public or private transfer payments.GDP is a measure of value added.It avoids multiple counting by measuring the value of final goods and services and excludes the value of intermediate goods.

Question 4

Define net exports.

Question 5

The following is a list of figures for a given year in billions of dollars.Using this data,compute: (a)GDP by the Expenditure Method; (b)GDP by the Income Method; (c)Net exports;and (d)Net Investment.

Question 6

Differentiate between nominal and real GDP.

Question 7

Of what use is national income accounting to economists and to policy makers?

Question 8

How is a price index computed?

Question 9

Explain what is and what is not included in government purchases in GDP.

Question 10

Give the three categories,which comprise gross investment;and explain the difference between them.

Question 11

Net investment can be positive,negative,or zero,but gross investment can never be less than zero.Explain.

Question 12

Why do economists worry about "multiple counting" and calculate only the "value added" in the production process?

Question 13

Define the four categories of expenditures,which comprise GDP.

Question 14

Why is GDP a monetary measure?

Question 15

Which of the following are included and which are excluded in calculating this year's GDP? Explain in each instance.
(a)A monthly scholarship cheque received by an economics student.
(b)The purchase of a new corncrib by a farmer.
(c)The purchase of a used tractor by a farmer.
(d)The cashing in of a savings bond.
(e)The services of a mechanic in fixing the radiator in his own car.
(f)Canada Pension Plan cheques received by a retired person.
(g)An increase in business inventories.
(h)Government purchase of missiles.
(i)A barber's income.
(j)Income received from interest on a corporate bond.
(k)Cash received from selling a corporate bond.

Question 16

What adjustments need to be made to go from net domestic income at factor cost to GDP?

Question 17

What are the components of net domestic income at factor cost? What is the relative share of GDP in 2011 going to: Wages,salaries and supplementary labour income;and to Profits of corporations and government enterprises before taxes?

Question 18

Explain the difference between final and intermediate goods,and give an example of each.

Question 19

The following is a list of figures for a given year in billions of dollars.Using this data,compute: (a)GDP by the Expenditure Method; (b)GDP by the Income Method; (c)Net exports;and (d)Net Investment.

Question 20

Firms A-E are involved in the production of some good.What is the total value added by all the firms in the production of this good? What did each firm add separately in value and what does it total?

Question 21

What are the two basic ways of deriving real GDP from nominal GDP?

Question 22

When would a fixed based price index cause GDP growth to be overstated?

Question 23

If Canada doubled its real GDP,it would be a much less liveable society than it is today.Explain this view.

Question 24

The following table shows the price of a specific stereo receiver for a five-year period.Using Year 3 as the base year,calculate the price index for each year.

Question 25

Identify at least four transactions and other variables,which are not included in the GDP.

Question 26

The following data show nominal GDP and the appropriate price index for several years.Compute real GDP for each year and indicate whether you have "inflated" or "deflated" nominal GDP in finding real GDP.All GDP are in billions.

Question 27

The expanding "underground" economy creates problems for economic policy makers.Explain.

Question 28

Discuss the pros and cons of GDP as a measure of the economy's output performance and as a measure of its standard of living.

Question 29

What is the relationship between real GDP,nominal GDP,and the price index?