Exam 24: Measuring a Nations Income

What is the process used to separate the change in GDP due to an increased output of goods and services, from the change due to increased prices? Why do we make this distinction?

How can focusing on GDP output as a measure of an economy's development result in poorer quality of life for its citizens?

International studies show that higher GDP per person is associated with higher levels of literacy and greater life expectancy.

David's Microchip Company (DMC) produces microchips for MP3 players, which it sells for $18 million to John Smith Electronics (JSE). JSE's MP3 players are sold for a total of $22 million. What is the value added to JSE?

GDP includes the value of final goods, and not intermediate goods, because:

Consumption is spending by households on goods and services, including household purchases of new housing.

Many things that society values, such as good health, high-quality education, enjoyable recreation opportunities and desirable moral attributes of the population, are not measured as part of GDP.

Total transfer payments are included in GDP because the recipients of these payments are providing an exchangeable good or service.

Qantas providing a code-sharing service for passengers booked on British Airways is an example of an increase in net exports.

Cyclical adjustments are used by statisticians to ensure that the higher production in certain times of the year is kept in perspective.

According to the income-expenditure identity, the total income of a country equals the sum of the four types of expenditure: consumption, investment, government purchases and net exports.