ECON Test 3

Analyze the shortcomings of GDP.

Because of this, GDP may overstate the amount of economic activity in nations with rapidly depreciating capital stocks. a measure of a nation's quality of life that includes the income and output measured by gross domestic product.

Examine the interaction between inflation and the price index.

Consumer Price Index in the United States is used to calculate inflation

Determine how net exports are calculated, and explain what it means when a country has negative net exports.

Net exports are the value of a country's total exports minus the value of its total imports. ... In other words, net exports equal the amount by which foreign countries spend on a home country's goods and services exceeds the home country's spending on imported foreign goods and services.

Examine the components included in Gross Private Domestic Investment, and explain the figures that are not included in this calculation.

Net investment is gross investment minus depreciation.

Explain the difference between intermediary and final goods.

Final goods refer to those goods which are used either for consumption or for investment. Intermediate goods refer to those goods which are used either for resale or for further production in the same year.

Given a set of data, calculate GDP, NDP, NI, PI, and DI.

GDP = C + Ig + G + Xn Net Investment = Gross Investment - Depreciation Net Domestic Product = GDP - Depreciation National Income = Net Domestic Product - Statistical Discrepancy + Net Foreign Factor Income Personal Income = National Income - Taxes on Productions and Imports - Social Security Contributions - Corporate Income Taxes - Undistributed Corporate Profits + Transfer Payments Disposable Income = Personal Income - Personal Taxes

Define GDP.

Gross domestic product

Calculate the value added of a good.

It is used as a measure of shareholder value, calculated using the formula: Added Value = Price that the product or service is sold at - cost of producing the product.

Determine what types of transactions are not included in the calculation of GDP, and explain why they are excluded.

Only newly produced goods - including those that increase inventories - are counted in GDP. Sales of used goods and sales from inventories of goods that were produced in previous years are excluded. When calculating GDP, transfer payments are excluded because nothing gets produced.

Explain what types of transactions are included in the consumption category of GDP.

Personal consumption expenditures. Investment. Net exports. Government expenditure.

Calculate price index, nominal GDP, and real GDP

Price Index (in hundredths) = Nominal GDP / Real GDP Real GDP = Nominal GDP / Price Index in hundredths

Explain how the price index affects the relationship between nominal and real GDP.

The price index is to show how the value of currency changes over time. Nominal GDP is the GDP of the recent year while Real GDP is over time and adjusted for inflation.

Calculate how inventories are added into GDP.

Total Investment is equal to Fixed Investment plus the Change in Inventories

Explain the types of transactions that are included (and not included) in the government purchases portion of GDP.

What is not included is Sales of goods that were produced outside our domestic borders, Sales of used goods, Illegal sales of goods and services (which we call the black market), Transfer payments made by the government. Only goods and services produced domestically are included within the GDP. Only newly produced goods - including those that increase inventories - are counted in GDP. Sales of used goods and sales from inventories of goods that were produced in previous years are excluded. Also intermediate good are excluded.