Exam 7: Measuring the Aggregate Economy

Define the following price indices: PPI, GDP Deflator, CPI, and PCE deflator.

If real income has risen from $5 trillion to $5.3 trillion and the price level went up by 12%, by what dollar amount has nominal income risen?

What are personal consumption expenditures?

What is net foreign factor income, and how can we use it to determine whether GNP or GDP is larger?

Why will calculating GDP using the expenditure approach give you the same value as using the income approach? What types of data would be needed for each approach?

You've been given the following data:

Net non-business interest income	27
Government purchases	600
Gross private investment	500
Depreciation	10
Net exports	-50
Personal consumption	2,500
Foreign factor income earned domestically	320
Income from foreign domestic factor sources	300

On the basis of these data calculate GDP, NDP, and GNP.

What are the four expenditure components of GDP?

How can GDP be calculated without "double counting"?

Why is it difficult to measure real wealth?

Suppose there is a stock market bubble (asset price inflation) that bursts (rapid asset deflation).People see the value of their investments fall rapidly.Has their real wealth changed? Explain.

What is meant by "GDP"? What are the four expenditure components of GDP and what is included in each of these components?

What is gross private investment?

Define real and nominal GDP and explain why the growth of real GDP is more important to society than the growth in nominal GDP?

Without national income accounting there would not be any macroeconomics.Evaluate this statement.

In calculating GDP by the expenditure method, there are two ways to avoid the double counting of intermediate goods.Demonstrate your understanding of these two methods by showing how both produce the same calculation of contribution to GDP.Assume the following: 1) Iron ore is produced by iron mining, which is sold to steel makers for $30 million (we will make the simplifying assumption that iron mining uses no intermediate goods).2) The iron ore is all used to make steel, which is sold to automobile makers for $100 million.3) The steel is all used to make automobiles, which are sold to dealers for $250 million.4) All of the automobiles are sold by the dealers to consumers for $350 million.What are the two methods, and what contribution to GDP can be calculated by each method, from the above assumptions?

Assume an economy produces just cars and computers; use the information in the table below to answer the following questions about the GDP. Cars Camputers Year Quantity Price Quantity Price 2018 100 \ 10,000 1,000 \ 1,000 2019 110 \ 12,000 1,100 \ 900 (1) Calculate nominal GDP in 2018 and 2019.What is the growth rate in nominal GDP? (2) Using 2018 as a base year, calculate real GDP in 2019.What is the growth rate in real GDP? (3) Calculate the GDP deflator in 2019.

What is nominal wealth?

What is real GDP?

What is inflation?

What is national income accounting and why is it useful?