Download National Income Accounting Test - uwcmaastricht-econ

National Income Accounting Test
Outline of answers
1.
a)
Real GDP 2002 = 208
Real GDP 2003 = 226
b)
GDP deflator 2003 = Nominal GDP 2003 / Nominal GDP 2003 = 258 / 226 =
114.2
Nominal GDP 2003 = 258
c) You really need to take note of how many marks the question is worth and you have to
give enough information to earn the maximum marks.
You should have outlined precisely how to calculate each. Then you should have
explained that real GDP is a much more accurate measure of increases in actual output
because it uses constant (base year) prices, which isolates changes in output and corrects
for changes in prices caused by inflation. Nominal GDP uses the current prices of each
year so when comparing GDP from one year to the next will be affected by changes in
output as well as changes in prices, which makes it difficult to isolate changes in output.
2.
It was very disappointing that there were some of you who lost a lot of marks on this
section. Again, take note of the number of points the question is worth!
You were supposed to give concrete examples, such as ‘purchases of food by households’
(just ‘food’ or ‘car’ is not enough).
You can look this up in your book/notes.
3.
When asked to define, you have to give a precise definition, not just a general statement.
GDP is the total market/monetary value of all FINAL goods and services produced
within the geographical boundaries of a country over a specified period of time.
GDP per capita is the GDP divided by the population.
1. When comparing the GDPs (or the economic growth) of different countries that
have very different populations GDP per capita should be used rather than GDP.
2. GDP per capita should also be used when comparing the economic growth (GDP
growth) of one single country over a long period of time, to take into account
population growth within the country. If total GDP grows faster than population,
then GDP per capita will grow. If population grows faster than GDP, then GDP
per capita will fall.
4.
The question asked you to give your meaning, so you were supposed to give it, using
what you know. Generally the strongest argument is that the GDP tends to be
underestimated. The main reason behind this is because only economic activity that
passes through an official economic market is counted in the GDP. Therefore:
1. GDP will not include non-marketed output, that is, goods and services not sold in the
market and not generating any income. Examples: when you paint or do renovations at
home yourself, these economic activities (you are providing yourself with a service) are
not recorded in the GDP.
2. GDP does not include output sold in informal markets. In this case goods and services
do generate incomes, but they are not recorded (to avoid paying taxes, for instance) and
are not included in the GDP. Examples: when I pay my neighbor to baby-sit my children,
or when you mother pays your cousin to paint the house.
There are other arguments you could have mentioned supporting the view that GDP is
underestimated: GDP statistics do not accurately measure the true value of output
produced in an economy. Also, volunteer services are not included in GDP and there is a
lot of in developed countries.
5.
You were asked to give 4 (not 5 or 8, as some of you wrote, JUST FOUR!) weaknesses
of the GDP as a measure of a country’s welfare. You should take care of the presentation
when you write this type of answers. It is a good idea to enumerate your items, using
numbers (1, 2, 3, 4) or letters (a, b, c, d) and to start a new paragraph after each item. I am
sure that IB examiners will appreciate it.
You can look this up in your book/notes.