Week 2:Measuring Domestic output and National income

Why do we want to measure economic activity?

• Health

• Track

• Formulate

Economic growth=

• Assess the health of the economy through trends

• Track the long-run course of the economy to see whether it has grown, remained constant, or declined

• Formulate policies to safeguard and improve the health

=Change in the GDP

• What does GDP stand for and what is it a meausre of

• What is the key definition for GDP

What are the 4 components of GDP and how to calculate it

-What 2 things can GDP also be known as

(note: Z and M can be used interchangeably)

Components of GDP:

-What can consumption be divided into

-What else is investment known as

-What can Investment be divided into

Components of GDP

-What does government spending exclude

-In terms of exports what’s added and what’s subtracted to/from GDP

• Grants aren’t included,it’d be included in consumption or else we’d account for it twice.. (I.e We only count when households go to the shops to buy their final goods,like Gov. giving grant for 1000 and consumer goes the same day to buy stuff for 1000,now we’d be counting it as 2000 even though its only 1000)

  -In short= We don’t include transfers to households under government spending

• Exports + imports

-What is are the 3 ways to measure GDP

-Finish the flow item,where GDP can be calculated at all 3 points in the process:

Production➡____➡_____

Production is sold → generates income → which is spent on goods and service

EXPLANTION: Why do the 3 methods give the same answer

Which method requires more information and what info exactly

• Income method,wages

Explain the Final value method

Explain the Value-added method

Explain the income method

How is depreciation treated in the:

-Income approach

-Expenditure approach

in terms of explicitness

• GDP=Wages+ Rent +interest+ Profit+ Depreciation(Taxes-Subsidies)

• GDP=Consumption expenditure +Investment +Government spending+(Exports-Imports)

This is

Expenditure method

This is

income method

Explain this

• GNI(Gross national income) helps us know ___&___

• How to calculate GNI

GDP vs GNI

• GDP is a ____ concept

• Measures production where

• Can foreign-owned firms be included

• Goods sold___ or ____

GDP vs GNI

• GNI is an___ concept

• Where does it measure

• Adjusts what for what

• **And how do we move from GDP to GNI

• What is economic growth

• How do we measure it

Why is economic growth important,finish the flow chart

What’s Nominal vs Real GDP

• Nominal: based on prices which changes every year due to inflation,not a true reflection of GDP

• Real: Remove price(inflation) effects by using a base year price so that all we focus on is changes in quantity

• We can choose any year as our base year,but don’t choose a year with an obvious abnormality like 2020 with COVID

“How can we compare GDP across years when prices change due to inflation or deflation?” There are 4 ways,explain each:

• Price index

• Nominal GDP

• Real GDP

• GDP price index

• Market basket=specified collection of goods(ie. Pizza),these things are compared year by year

• What does the government also use Price indexes for and what it allows us to do(distinguish between what 2 chnages)

• How to calculate ‘Price index in specific year’ and ‘Real GDP’

What does GDP NOT measure (4 limitations)

-Unreported

-Non-market

-Second-hand

-Bads

NOTE: GDP does not measure all economic activity

GDP per capita(is per person) and GDP whole country

What are the 5 limitations of GDP per Capita

• Distributions

• Subjectiveness in terms of

• Externalities

• QOL

• Sustainability

• What does “uneconomic growth” according to Herman Daly mean

• What is an alternative to GDP that measures growth in a country

• Where GDP is growing but societal welfare is not

Besides GPI what other indicator measures growth and name 3 indicators of human development

HUMAN DEVELOPMENT INDEX