What is National Income and how is it linked to NDP

Week 10 – National Income Accounting

Part a

1. What is the definition of Gross Domestic Product (GDP)? Explain each part of the definition.

(a) What is value-added? How is it linked to GDP?

(b) How else can we measure the GDP? Give both the income approach and expenditure approach. Explain each part of each approach.

(c) What is GNP and how is it linked to GDP?

(d) What is NDP and how is it linked to GDP?

(e) What is National Income and how is it linked to NDP?

(f) Find out the U.S. GDP (in current dollars) for 1986-2016 and plot them into a graph.

(g) What is real GDP? How is it measured? Find out the U.S. Real GDP for 1978-2017 and plot them into the same graph.

(h) What is the GDP deflator? Why is it important?

(i) What is the difference between the growth rate of nominal GDP, the growth rate of real GDP and the growth rate of real GDP per capita? What are the determinants of the last one? Find out the growth rate of U.S. Real GDP per capita for 1978-2017 and plot them into a graph.

2. What is inflation?

(a) Give three different ways to measure it.

(b) Find out the U.S. rates of inflation for 1979-2018 and plot them into a graph.

(c) What is the difference between cost-push and demand-pull inflation?

Part b

3. What is the definition of an “unemployed”person according to the U.S. Bureau of Labor Statistics?

(a) Find out the U.S. rates of unemployment for 1979-2018 and plot them into a graph.

(b) “The unemployment rate has gone down, which means the economy is doing really well.”True or false? Explain.

(c) What are the three types of unemployment? Explain each one.

(d) What is the natural rate of unemployment?

4. What is consumption function and saving function? What is marginal propensity to consume (mpc)?

(a) How is saving related to mpc? Is saving related to the real interest rate (r)?

(b) Why is investment negatively related to r?

5. What is money?

(a) Which broad categories can we devide its uses into?

(b) How are bond prices related to the real rate of interest r? Explain with an example.

(c) How is the demand for money (or real balance of money) related to the real rate of interest r and real GDP Y ? Why?

(d) What are M1 and M2 money stock?

(e) Is credit card counted as money? Why?

(f) How do commercial banks create money? Explain with an example. What is the money multiplier?

(g) Who controls the money supply? What are the tools? How do the tools change the money supply?

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