ECON 102 2nd Mid Term Review Notes

ECON 102 2nd Mid Term Review Notes - 1 What is Gross...

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1. What is Gross Domestic Product and how is it measured. Calculate GDP from both the expenditure and income approach. GDP is the market value of all final goods and services produced in a nation during a period of time, usually a year. It is measured in the expenditure (Consumption+ Investment+ Government+(exports- Imports)= GDP. The income approach= compensation of employees + rent + profits + net interest + indirect business taxes + depreciation 2. How are indirect business taxes, personal taxes, depreciation, and transfer payments treated in the calculation of GDP, National Income, Personal income, and Personal Disposable Income? Indirect business taxes are levied as % of price of goods except general sales tax. Depredation hard to measure so its estimated, its added in GDP as consumption of fixed capital. 3. What is investment and how is it measured in our national accounts? How are changes in inventory treated? Investment is building up capital. Capital is productive muscle and is measured by the development and purchases of new factories, inputs and in addition you add changes in inventory. 4. How is double counting avoided in determining the GDP? By counting only the final goods and services not the intermediate goods.
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What are some of the major deficiencies of national income accounting? What things are most likely to be left out? Don’t count leisure, household work. There are no measures for the underground or illegal economy. Don’t count the negative side effects of production. Sometimes you are counting stuff twice 6. What is the largest expenditure component of GDP? Consumption 7. What is the difference between a stock and flow? In the circular flow model, what flows are being measured? Stock is a lake and a flow is a river. How much water is in the lake? Aka the stock? You can measure that but how much water is in the river aka the flow, you have to ask in what period of time. C and I and G and X-M are all flows 8. What would happen to the GDP if we counted household work, the underground economy, and leisure? It would go way up 9. What are the four phases of the business cycle and how are they determined? Peak, recession, trough, recovery
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ECON 102 2nd Mid Term Review Notes - 1 What is Gross...

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