Exam 6: Measuring National Output and National Income

-Using the above figures, compute the subtotals for each of the four major spending categories and label them. Then compute the value of GDP.

Thinking about inventory as investment is sometimes confusing. What service does inventory provide that would cause economists to count it as investment?

What are subsidies? Give at least two examples.

Prostitution and illegal drug consumption are not included in the official GDP statistics. Is this necessarily a shortcoming?

Explain how the term investment in economics is different from the way it is used in everyday life.

Many American companies that previously manufactured goods and services at home have increasingly relied on manufacturing facilities in China over the last twenty years. However, with the rise in diesel fuel prices this has increased the cost to domestic firms of importing these manufactured products. Some companies are discovering that the transportation costs are so great that it is tipping the balance in favor of making it more economical to build manufacturing facilities here in the United States. If many other firms follow suit what impact will this have on Gross Domestic Product?

Suppose that your economics professor spent a week in Moscow delivering a series of lectures sponsored by the Russian government and a Russian professor spent a week in the U.S. delivering a series of lectures sponsored by your university. How would each of these events be reconciled in the U.S. and Russian GDP and GNP accounts?

Define national income and identify its five components.

Write out the formula for calculating GDP using the income approach.

List some limitations of GDP as a measurement of social welfare.

-Using the above table calculate GNP, NNP, National Income, Personal Income and Disposable income.

Why should we care about the underground economy?

Why aren't intermediate goods counted in GDP?

Explain why real GDP may only rise even when the prices of large number of goods in the economy have fallen dramatically.

Define disposable personal income.

Explain the two approaches that can be used to compute GDP. Why do these two approaches lead to the same value for GDP?

Write out the equation for calculating national income as derived from NNP.

Evaluate the following statement. "GDP increases with polluting activities and then again with the clean up of these same activities."

Explain what is meant by the expenditure approach to calculating GDP.

How can double counting be avoided?