exam
1.Measurement of national income: GDP and three methods of its calculation.
GDP – is the value of output produces within the country over a 1-year period.
1. The first method of measuring GDP is to add up the value of all the goods and services produced in the country, industry by industry. In other words, we focus on firms and add up all their production. This first method is known as the product method. GVA over a year. Exclude taxes on products VAT, includes subsidies. (intermediate consumption).
2. Income method is the form of wages, salaries, taxes, rent, profits and interest, A-capital consumotion allowance. The second method of measuring GDP, therefore, is to add up all these incomes. GDP = W+R+I+P+A+Ti-Net Factor income from abroad.
3. The third method focuses on the expenditures necessary to purchase the nation’s production. In this simple model of the circular flow of income, with no injections or with- drawals, whatever is produced is sold. The value of what is sold must therefore be the value of what is produced. The expenditure method measures this sales value. GPD = C + G + I + X – M
Nominal GDP measures GDP in the prices at the time and take no account of inflation. Real GDP measures GDP with a price of base year. GDP deflator is the ratio of nominal GDP to real and shows what is happening to the overall level of prices in the economy.
Price Indexes (Deflators)
Traditionally deflators followed the concept of the Paasche index:
Alternatively, basket indexes are calculated according to the concept of the Laspeyres index:
Since 2004, SNA deflators are no more calculated as Paasche indexes but rather as geometric averages of Paasche and Laspeyres indexes (chaining or Fisher Index):
The Fisher Index is calculated as the geometric mean of Paasche and Laspeyres indexes.
The Consumer Price Index
The most commonly used measure of the level of prices is the consumer price (CPI).
The CPI is the price of this basket of goods and services relative
GDP – is the value of output produces within the country over a 1-year period.
1. The first method of measuring GDP is to add up the value of all the goods and services produced in the country, industry by industry. In other words, we focus on firms and add up all their production. This first method is known as the product method. GVA over a year. Exclude taxes on products VAT, includes subsidies. (intermediate consumption).
2. Income method is the form of wages, salaries, taxes, rent, profits and interest, A-capital consumotion allowance. The second method of measuring GDP, therefore, is to add up all these incomes. GDP = W+R+I+P+A+Ti-Net Factor income from abroad.
3. The third method focuses on the expenditures necessary to purchase the nation’s production. In this simple model of the circular flow of income, with no injections or with- drawals, whatever is produced is sold. The value of what is sold must therefore be the value of what is produced. The expenditure method measures this sales value. GPD = C + G + I + X – M
Nominal GDP measures GDP in the prices at the time and take no account of inflation. Real GDP measures GDP with a price of base year. GDP deflator is the ratio of nominal GDP to real and shows what is happening to the overall level of prices in the economy.
Price Indexes (Deflators)
Traditionally deflators followed the concept of the Paasche index:
Alternatively, basket indexes are calculated according to the concept of the Laspeyres index:
Since 2004, SNA deflators are no more calculated as Paasche indexes but rather as geometric averages of Paasche and Laspeyres indexes (chaining or Fisher Index):
The Fisher Index is calculated as the geometric mean of Paasche and Laspeyres indexes.
The Consumer Price Index
The most commonly used measure of the level of prices is the consumer price (CPI).
The CPI is the price of this basket of goods and services relative