Grade 11 Economics: Chapter 3- Lesson 3.6 & 3.7

Name two major macroeconomics measures of national income besides Gross Domestic Product (GDP).

1. Net Domestic Product (NDP)

2. National Income (NI)

What is the definition of Net Domestic Product (NDP)?

It is the total value of all final goods and services produced within a country's borders after subtracting the value of capital that was worn out during production.

What is the mathematical formula used to calculate Net Domestic Product (NDP)?

$$\text{NDP} = \text{GDP} - \text{Capital Consumption Allowance (Depreciation)}$$

What does the term Capital Consumption Allowance mean?

It is another term for depreciation, which represents the value of fixed capital assets (like machinery, buildings, and tools) that wear out, degrade, or become obsolete over the course of a year.

What is the economic definition of National Income (NI)?

The total income earned by a country’s permanent citizens and businesses (resource owners) for providing their factors of production, regardless of where those resources are located globally.

According to the text, what five components are summed up to calculate National Income (NI)?

$$\text{NI} = \text{Compensation of employees} + \text{Proprietors' income} + \text{Corporate profits} + \text{Rental income of persons} + \text{Net interest}$$

How do you mathematically derive Personal Income (PI) if you begin with National Income (NI)?

$$\text{PI} = \text{National Income} - \text{Undistributed Corporate Profits} - \text{Social Insurance Taxes} - \text{Corporate Profits Taxes} + \text{Transfer Payments}$$

What is the definition of Disposable Personal Income (DPI)?

The amount of money that households and non-corporate businesses have left over after meeting all their personal tax obligations to the government.

What is the formula to find Disposable Personal Income (DPI) from Personal Income (PI)?

$$\text{DPI} = \text{Personal Income} - \text{Personal Tax Payments}$$

What two primary choices do consumers have when deciding how to allocate their Disposable Personal Income (DPI)?

hey can split it between Personal Consumption Expenditures ($C$) and Personal Saving ($S$).

$$\text{DPI} = C + S$$

What is a major, fundamental limitation of using raw GDP to judge the welfare of individuals in an economy?

GDP is an aggregate measure of total output, meaning it does not show income distribution or reveal who is earning what within the country.

What metric do economists use to find the statistical average earnings of an individual inside an economy?

Per Capita GDP (or per capita income), which divides the total calculated GDP value by the nation's total population.

Why can Per Capita GDP give a misleading impression of a country's standard of living?

Because it is a simple mathematical average. If an economy has severe income inequality, a high Per Capita GDP might reflect massive wealth held by a tiny elite, while the majority of citizens live in poverty.

Because GDP alone cannot capture equity or economic fairness, what other measures must governments use for policy analysis?

Inequality measures, poverty analysis, and alternative development indicators.

Summarize the core operational difference between GDP and GNP as stated in the unit summary.

GDP is boundary-limited, focusing on where production happens geographically.

GNP is citizenship-limited, focusing on who owns the resources that generated the output.

If an increase in the price of imported consumption goods occurs, which index will register the change: the CPI, the GDP Deflator, or both?

Only the CPI will rise, because imports are not part of domestic production and therefore do not show up in the GDP Deflator.