Exam 8: Measuring the Aggregate Economy

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

Briefly describe two limitations of national income accounting.

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

What is national income? What are its four components?

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

If asset inflation has occurred,which has changed: real wealth,nominal wealth or both?

Why is it difficult to measure real wealth?

What is the difference between GDP and GNP? How are they related?

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.

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

What are the four expenditure components of GDP?

What is the distinction between gross domestic product (GDP)and net domestic product (NDP)? In theory,which is a superior measure of aggregate output?

Aggregate income is divided into four categories.They are (1)Compensation of Employees, (2)Rents, (3)Interest and (4)Profits.Briefly describe what is and is not included in each category.

Your economics professor asked you to use data from the U.S.economy to show that GNP can be calculated using the income approach and the expenditures approach.What type of data should you gather to complete this assignment?

What is gross private investment?

Describe in your own words the difference between a stock and a flow.For each of the following activities,determine whether it is a stock concept or a flow concept: (a)Sue earns $5.75 per hour working at the Burger Barn. (b)On his way home from work,Sam finds a ten-dollar bill. (c)Upon graduation,John accepts a job with a salary of $2000. (d)Jennifer saves 10% of her monthly income. (e)Alex saves $1,000 a year. (f)Japan has a capital to labor ratio of 10 where China has a capital to labor ratio of 2.

What are personal consumption expenditures?