Introduction to Macro Economics

TOPIC II: Measuring National Income and National Product

1. define GDP, what it does and does not measure.
2. explain double-counting and how it can be avoided.
3. how inflation affects GDP.
4. calculate and define real GDP.
5. calculate and explain a price index.
6. explain base year. differentiate among price indexes.
7. explain GDP as a measures of national standards of living.
8. analyze and explain GDP and National Income
9. calculate and explain personal income, disposable income, and personal savings.
10. explain how GDP measures the nation's standard of living.
11. calculate national product, gross national product, and national income given novel information.

KNOW THE FOLLOWING TERMS

Capital depreciation Exports Gross Private Domestic Investment Indirect Business Taxes Investment National Income (NI) Net National Product (NNP) Personal Consumption  Proprietor's Income Value Added

Disposable Income (DI) Gross Domestic Product (GDP) Imports Inventory Money GDP Net Exports Net Domestic Investment Personal Income Real GDP

KEY CONCEPTUAL QUESTIONS

1. What is Gross Domestic Product and what does it measure? What are the two approaches to measure GDP and why do they yield identical results?
2. Why are only final goods and services evaluated in deriving GNP?
3. How does correcting GDP for price level and population changes improve the usefulness of GDP estimates?
4. Why might GDP be a misleading index of changes in output between 1900 and 1980 in the United States? of differences between the United States and Mexico?
5. Why must depreciation and indirect business taxes be added to national income at factor cost in order to derive GDP via the income approach?