Chapter 1 B&W - GDP and National Accounts

What definition of GDP pertains to final sales?

GDP = sum of final sales within a geographic location during a period of time (typically a year) i.e. intermediates sales are not counted to avoid double counting.

What definition of GDP pertains to value added?

GDP = sum of value added occuring within a particular location in a given period of time. Value added = sales - (raw materials +unfinished goods + imports) however, this value added is counted for in the price of a product so it shouldn’t be counted twice.

What definition of GDP accounts for income of residents and non-residents within a country’s borders?

GDP = sum of incomes earned from economic activities within a particular location during a period of time. Because one person’s spending = someone else’s income it is consistent with final sales definition.

What is the difference between nominal GDP and real GDP?

Nominal GDP, as well as all nominal macro variables, measure values (in this case GDP) at current prices whereas real variables represent volumes at constant prices.

What is the difference between GNI and GDP?

GNI = total value added by residents of country + resident’s income abroad - non-resident incomes within the country

GDP = income from non-residents and residents strictly within the borders of a country

Show that the total saving in an economy will always equal investment plus net exports.

S = Y - T - C

S = (C + I + G +NX) - T - C

S +(T-G) = I + NX where T-G is public savings

I bought my house for £100 000. I have just sold it for £200 000 and the estate agent received a 10% commission from the buyer. What is the effect on GDP?

10% * £200,000 = £20,000 - GDP increases by 20,000