L5.Interpreting_national_income_and_output_measures

What are the three main issues discussed regarding national income and output measures?

Income accounting for policy analysis, converting nominal to constant prices, and the relationship between real GDP and economic welfare.

What is the GDP identity

GDP = C + I + G + X - IM.

What does the negative %∆ in GDP during 2008-09 indicate?

A recession largely due to a fall in investment.

What comprises the saving equation in national income accounting?

S = Y (national income) - T (taxes) - C (consumption).

What result occurs if S = I and T = G in national income accounts?

Each sector would be in balance with no borrowing or lending to others.

What is the GDP deflator?

A price index calculated as current GDP divided by constant GDP, multiplied by 100.

What is the formula to calculate the inflation rate between two periods?

Inflation rate = (Pt - Pt-1) x 100 / Pt-1.

Where:

• 'Pt' is the price level in the current period, and

• 'Pt-1' is the price level in the previous period. This formula indicates the percentage change in prices, which helps assess the inflation rate and the purchasing power of money.

What is the Retail Prices Index (RPI)?

A weighted average that reflects changes in the cost of living for consumer goods.

What makes it hard to measure Gross National Income (GNI)?

Accurately measuring GNI is challenging due to measurement issues and the exclusion of key well-being factors.

Name one omission from measured national income.

Hidden economy, non-paid non-market activities, economic trade externalities, or leisure time.

Why are GDP comparisons across countries often unreliable?

Different accounting systems, currency conversion issues, and deviations from purchasing power parity.

What is one determinant of happiness not captured by GDP?

Stable relationships, political freedom, leisure, good health, or living in a conflict-free society.

What does 'C' represent in the GDP identity?

In the GDP identity, 'C' represents consumption, which encompasses all household expenditures on goods and services.

What does 'I' stand for in the GDP identity?

'I' stands for investment, which includes business spending on capital goods that will be used for future production.

What does 'G' indicate in the GDP identity?

'G' indicates government spending, which includes expenditures on public services and infrastructure.

What do 'X' and 'IM' signify in the GDP identity?

In the GDP identity, 'X' signifies total exports, while 'IM' signifies total imports, reflecting the net trade balance.

How does the GDP identity help in economic analysis?

The GDP identity provides a framework for analyzing the components contributing to economic output, helping policymakers understand how different sectors of the economy interact.