Exam 7: Measuring the Aggregate Economy

In economics it is important to know the distinction between flow concepts and stock concepts.Explain this distinction, and give examples of each.

Nominal output has increased from $600 billion to $720 billion.The GDP deflator has risen by 10%.By what dollar amount has real output risen?

Why is the definition of profit the key to explaining the equality between aggregate income and aggregate production?

What is the difference between Gross Domestic Product (GDP) and Gross National Product (GNP) ? What is the difference between Gross Domestic Product (GDP) and Net Domestic Product (NDP)?

There are two possible ways to avoid counting intermediate goods (i.e., double counting) in calculating GDP.Identify each of them and discuss each briefly.

Calculate the contribution to GDP that would be the result of each of the following transactions: (a) The government purchases an airplane for $6 million. (b) A citizen sells a used car for $6,000. (c) A citizen sells a used car to a dealer for $6,000, who resells it to a consumer for $7,500. (d) A citizen sells a bond for $1,000 that they bought last year for $600. (e) The government issues a social security check for $1,250 (ignore the administrative costs of issuing the check).

Explain the difference between real and nominal output.Explain how they are related.