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Chapter6 (1) - 6(19 M s rin N tio a ea u g a n l O tp t a d...

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6(19) Measuring National Output and National Income Gross Domestic Product 1. Define GDP in broad terms. GDP stands for Gross Domestic Product. It represents the total market value of a country's output. It is the market value of all final goods and services produced within a given period of time by factors of production located within a country. Difficulty : E Type : D 2. Why aren't intermediate goods counted in GDP? The reason is that if it weren't excluded the GDP figures would be double counting some production. That is to say that the market value of the final goods already reflects the value of the intermediate goods . Difficulty : E Type : C 3. Explain what is meant by the concept of "value added" and how it can be used to calculate GDP. Value added simply refers to the difference between the value of goods as they leave a stage of production and the cost of the goods as they entered that stage. If you add up the "value added" at each stage of the production process, the final value is equal to GDP. Difficulty : E Type : C 100
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Test Item File 3: Principles of Macroeconomics 4. Explain carefully the difference between GDP and GNP. Gross Domestic Product is the market value of all final goods and services produced within the confines of a country regardless of the national origin of the inputs that were used to produce the goods. Gross National Product by contrast measures the market value of all final goods and services produced within a given period by factors of production owned by the country's citizens, regardless of where the output is produced. Difficulty : M Type : C 5. Suppose that your economics professor spent a week in Moscow delivering a series of lectures sponsored by the Russian government and a Russian professor spent a week in the U.S. delivering a series of lectures sponsored by your university. How would each of these events be reconciled in the U.S. and Russian GDP and GNP accounts? The American economics professor's lecture would count as part of the U.S. GNP because it is output produced by an American input. It would also count as part of Russia's GDP since the lecture was delivered on Russian soil. Remember that GDP is prejudiced as to where the output is produced but is blind as to the national origin of the input. Just the reverse is true of the Russian professor's lecture in the U.S. His lecture would count as Russia's GNP and as U.S. GDP. Difficulty : M Type : C 6. Using the above table, calculate the value added at each stage of the production process. The value added is $20, $40, $30 and $20 respectively. Difficulty : E Type : A 7. The Bahamas is a group of islands whose economy relies heavily on tourism. The majority of the hotels and resorts in the islands are owned by foreign countries. Which do you think is larger, Bahamas' GDP or GNP? Explain why.
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