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Chapter 14 the Measurement of National Income Part II

Chapter 14 the Measurement of National Income Part II

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03/18/2014

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14 The measurement of national income (II)
Chapter Fourteen The measurement of national income (II)
Self-assessment Question

14.1 Yes! The increase in nominal GDP is composed of increase in price level and increase in real GDP. If nominal GDP increases at the same percentage as real GDP, it means that the general price level remains unchanged.

Multiple Choice Questions

* If you are using the \u2018Third edition 2003\u2019 edition, please note the items initalic in the following table have been amended as shown. The amendment has been incorporated in the \u2018First reprint 2003 (December)\u2019 edition.

GNP components
$
Private consumption expenditure
1,200
Government consumption expenditure
500
Depreciation allowance
200
Totalexports*
1,000
Gross domestic fixed capital formation
350
Increase in inventory
50
Indirect taxes
350
Totalimports*
800
Net income earned abroad
50
1
A
2
C
3
A
4
D
5
A
6
C
5

The estimation of GDP follows an international standard known as the System of National Accounts. So, there does not exist the problem of using different approaches in the estimation of GDP for international comparison of living standard.

Short Question
7
Not necessarily. The following factors have to be taken into account:
1) Size of population: the population of India is much larger than that of Hong Kong.
2) Composition of GDP: e.g. a significant proportion of India\u2019s GDP is on military expenses,
which do not contribute to the living standard.
3) The distribution of GDP in India is highly unequal, with the rich taking up a great share of
the GDP. So the standard of living of an average citizen is not high.
4) The undesirable effects of production such as pollution and traffic congestion are serious in
India. So, the living standard of India is not high.
New Introductory Economics 3rd Edition
\u00a9 Pearson Education Asia Limited 2003
Suggested Solutions (2004 reprint with minor amendments)
34

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