MGEA06H3 Study Guide - Final Guide: Gdp Deflator, Net National Product, Income Approach

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tealserval117

7 Mar 2014

School

UTSC

Department

Economics for Management Studies

Course

MGEA06H3

Professor

Iris Au

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MGEA06H3 Full Course Notes

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Topic 2 part a: measurement of national income - gdp. We measure aggregate output as gross domestic product (gdp) the total value of goods and services produced in the economy during a given period. There are 3 ways to measure national income/gdp: expenditure approach. Expenditure approach = c + i + g + nx. The expenditure approach, sometime called gross domestic expenditure (gde), adds up the expenditure needed to purchase the final output produced during a given period. Total expenditure is the sum of 4 major broad categories: consumption (c) Investment (i: government spending (g, net exports (nx) = exports (x) imports (im) Note: consumption, investment, and government spending may include final goods and services produced by foreigner. Therefore, given that gdp only measures final goods and services produced within the country, we need to subtract imports to avoid double counting. The income approach looks at all the incomes earned by canadians as a result of production.

Related Questions

Calculate the missing data.

Calculate missing data from the table.

Income/Expenditure Flows	Amount (in billions)
Consumption expenditure	$7
Government expenditure	$5
Depreciation	$3
Net taxes	$2
Investment	$4
Net exports	$1
Expenditures
Income
GDP

Calculate the following.

Using the data from a partial set of national income and expenditure data, address the following:

Calculate gross domestic product (GDP) using the expenditure approach.

Determine net domestic product, gross national product (GNP), and statistical discrepancy.

Item	Amount in 2010 (in billions)
Government expenditure (G) =	$8
Consumption expenditure (C) =	$20
Investment (I) =	$5
Net exports (NX) =	$1.5
GDP (expenditure approach)=
Total wages =	$21
Net operating surplus =	$11
Net domestic product =
Indirect taxes minus subsidies =	$3.5
Capital consumption =	$2
GDP (income approach)=
Statistical discrepancy =
Net factor income from abroad =	$5.5
GNP =

Consider the tables.

Given production and price data below, address the following:

Calculate an economy's nominal GDP and real GDP.

In 2000:

Item	Quantity (millions)	Price ($/unit)	Expenditure (millions of $)
Socks	15	5	75
SIM cards	20	2	40
Defense Budget	9	5	45

Real/Nominal GDP = 160

In 2003:

Item	Quantity (millions)	Price ($/unit)	Expenditure (millions of $)
Socks	15	5	75
SIM cards	20	5	100
Defense Budget	20	10	200

Nominal GDP =

2003 Quantities valued at 2000 prices:

Item	Quantity (millions)	Price ($/unit)	Expenditure (millions of $)
Socks
SIM cards
Defense Budget

Real GDP =

Answer the following questions.

How do you measure GDP?

How do you measure real and nominal GDP?

How do you determine Consumer Price Index and what are its limitations?

Which of the following expenditures will be included in GDP which will be excluded from the calculation? Explain your answers.

Spare tires bought by Across America, a car rental company

Textbooks bought by college students

Cabinets purchased by a furniture store

A new car purchased by an NFL player

A cruise ship bought by Carnival

Question 1 Gross domestic product (GDP) measures the economy's production of

A) final goods and services.

B) intermediate goods.

C) consumer goods and services.

D) capital goods.

Question 2 Because GDP is measured in dollars per year, GDP is called a

A) stock.

B) flow.

C) cycle.

D) chain.

Question 3 Which of the following would not be included in the gross private domestic investment (I) category of GDP?

A) A retailer's additions to its inventories.

B) A bakery's purchase of a new oven.

C) A trader's purchase on NASDAQ stocks.

D) Newly built residential construction.

Question 4 Which of the following government payments would be included in the government consumption expenditures and gross investment (G) category of GDP?

A) A firefighter's monthly paycheck.

B) A retired grandmother's Social Security check.

C) A retired colonel's veteran's benefits.

D) A laid-off auto worker's unemployment conpensation check.

Question 5 The largest component in the income approach to measuring GDP is

A) compensation of employees.

B) rents.

C) profits.

D) net interest.

Question 6 Which approach to calculating GDP attempts to measure employee compensation, rents, profits, and net interest?

A) The circular-flow approach.

B) The product-market approach.

C) The income approach.

D) The expenditure approach.

Question 7 In recent years, people have benefited from greater amounts of leisure time. This trend

A) has caused GDP to rise.

B) has caused GDP to fall.

C) made GDP fluctuate randomly.

D) is not accounted for in the GDP statistic.

Question 8 National income (NI) is calculated by adjusting GDP for

A) depreciation of capital.

B) investment and net exports.

C) Social Security insurance contributions and transfer payments.

D) corporate and personal income taxes.

Question 9 If an economy's real GDP has increased, we can conclude that the economy

A) is inflationary.

B) has increased its production.

C) suffers from recession.

D) needs a tax cut.

Question 10 In the circular flow model, investment, government spending, and exports are classified as

A) injections.

B) leakages.

C) transfers.

D) consumption expenditures.

1. Given the following data, answer questions. Compute GDP, NDP, NI, and DI if PI is $740

NOTE: Use both the expenditure and the income approaches for # 1.

Personal taxes……………30 Gross private domestic investment………….145

Depreciation……………..40 Corporate income taxes………………………65

Transfer payments…….....35 Undistributed income………………………...45

U.S. exports……………..12 Compensation for employees……………….540

Dividends………………..37 Indirect business taxes……………………...105

Corporate profits……….147 Personal consumption expenditure…………630

Rents…………………….10 Social security contributions……………….110

Interest.. ……………… 38 Federal government purchases……………..140

U. S. imports……………..7 State & local government purchases………..50

Proprietors’ income……..90

2. Given the following data, compute GDP, NDP, and NI

Personal consumption expenditure………………….219.1

Personal taxes………………………………………...40.5

U.S. exports of goods & services…………………….17.8

Transfer payment…………………………………….13.9

Net private domestic investment……………………..42.1

Depreciation………………………………………….11.8

Government purchases……………………………….59.4

Rents………………………………………………......5.0

U.S. imports of goods & services…………………....20.5

Interest...……………………………………………...12.6

Indirect business taxes………………………………..16.6

3. Given the following income data, answer questions #1 and #2 properly.

Year C Ig G Xn GDP

1 $ 3971.62 $800.20 $1235.38 $ --20.00 = $_________

2 $ 5407.02 ------------ 1580.51 --40.36 = 8318.48

3 $ 5584.65 1390.52 -------------- 89.33 = 8708.44

a. Fill- in all the missing blanks.

b. How big/small is the size of C, G, and Ig out of Year2 GDP?

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MGEA06H3 Study Guide - Final Guide: Gdp Deflator, Net National Product, Income Approach

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