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Measuring Economic Activity
It is also called
NATIONAL
INCOME
ACCOUNTING.
Measuring
Economic
Activity
Economy’s output is
also called
AGGREGATE OUTPUT.
GDP Vs. GNI
Real- life Focus
Ms Sharon’s and Mr Nick’s company
in Ningbo produces goods and
services in China – these will be
included in China’s GDP.
Bailey’s father has a business in
London and he moves there to run
his business. His output will be
included the UK’s GDP.
From the profits of the company,
every month, Mr Nick, her husband
sends ¥25,000 back to his UK bank
account. These will be included in
UK’s GNI as income received from
From the profits of the company,
Bailey’s father sends ¥ 100,000
every year back to his Bank of
China account, so that Bailey’s
tuition fees to MEA can be paid.
This income will be included in
China’s GNI as income received
from assets abroad.
assets abroad.
If China’s GDP is ¥2,000,000, what it China’s GNI? Let’s work it out……..
GDP Vs. GNI
Gross Domestic Product
(GDP) measures all
goods and services that
are made in the
country. This means
that it included goods
and services produced
by MNCs and domestic
producers.
Gross National Income
(GNI) measures the
income earned by all the
factors of production in
the country regardless of
where this income comes
from.
THINK: Which countries are likely to have a significantly
higher GNI than GDP?
GDP Vs. GNI
GNI = GDP + (profit money received from residents abroad –
profit sent out of the country)
GNI = GDP + Net property income from abroad
Net National Income (NNI) = GNI – Depreciation
Depreciation is the value lost of capital (equipment,
machinery) due to wear and tear.
THINK: What if in the next year, prices rise but the output
produced is the same? Will GDP increase or decrease?
Nominal GDP Vs. Real GDP
Nominal GDP is the value of goods and services measured at
that time. It is a value reflected in $ or £ or ¥. It does not
account for changes in price.
Real GDP removes the influence of price changes while
calculating the value of GDP. This is so that you can
compare the GDP from one year to another.
Let’s work it out……..
1.
2.
3.
Calculate the
Nominal GDP for
both years.
Calculate the Real
GDP for 2005.
Now let’s work out
GDP Growth Rate.
HOMEWORK
Friday 07 September 2012
LET’S ANALYSE!!!
Answer these questions in your classwork books.
Please use FULL SENTENCES.
1. Name the three flows shown in the Circular Flow Model.
Example 1
Example 2
2. Explain how firms are both buyers and sellers in the Circular
Flow Model.
This requires a diagram AND a written explanation.
• NO
abbreviations
(HH), please!
Example 1
Example 2
3. What are the 4 factors of production and what are their
respective payments.
Example 1
Example 2
4. What is the difference between a closed economy and an
open economy.
A closed economy is one in which there are
only two-decision makers – firms and
households, whereas in an open economy
there is the presence of a government, as
well as the existence of international trade.
Example
5. Explain what happens when the size of leakages are larger
than the size of injections.
(INCOME)
Other Countries
Fig. 1 Circular Flow of Income
Imports
Savings
INJECTIONS
Government
Spending on Exports
Taxes
Firms
Banks
Government Spending
HOUSEHOLD
EXPENDITURE
(EXPENDITURE)
Investment
LEAKAGES
Households
Leakages are the flows of money which leave the circular
income flow such as savings, taxes and imports.
Injections are flows of money which enters the circular
income flow such as investment, government spending
and exports.
These have been shown in the Circular Flow of Income
diagram below:
If the leakages are greater than the injections,
the income of households reduces and they have
less money to spend on buying goods and
services. Household consumption will decrease.
Firms will reduce their production and this will
create unemployment.
When unemployment increases, households
have lesser income to spend on consumption,
and demand for goods and services will drop
even more.
In conclusion, greater leakages in the economy
reduces the household income and the economy
shrinks (becomes smaller).
HOMEWORK
Wednesday 12 September 2012
1. If you want your previous HW to be re-graded,
then please re-submit completed work on
Friday.
2. Test on Chapter 13 on Friday 14 September
2012