Macro (ECON1002)

questions based on lectures

What is GDP and what does it include/exclude?

The market value of final goods and services produced in a country during a given period. It includes final production of goods and services, items produced in the country, and items with a market value. It excludes items purchased with cash or those without market value (e.g., air).

What are the three ways to measure GDP?

Expenditure method: GDP=C+I+G+(X−M)

Value added approach: Revenues made from product – Cost of Purchased Inputs = Value added

Income approach:summing the income payments made by firms to households for factors of production, such as wages for labor, interest for capital, rent for land, and profits.

What is the national account saving identity and what does it represent?

The national account saving identity states that aggregate output (Y) can be measured equivalently in terms of expenditure and income, expressed as Y=C+I+G+NX, where C is consumption, I is investment, G is government expenditure, and NX is net exports (exports minus imports).

Differentiate between stock and flow variables, providing an example for each.

A stock variable has no time dimension; its magnitude is described at a specific moment in time (e.g., money in your bank account today).

A flow variable necessarily involves a time dimension; its magnitude is described with reference to a time period (e.g., income earned per month, GDP per year).

Explain the difference between nominal and real economic magnitudes, using wages as an illustration.

A nominal magnitude (e.g., nominal wage) refers to the actual dollar amount.

A real magnitude (e.g., real wage) accounts for inflation, representing the purchasing power of the nominal amount.