14 The measurement of national income (II)
Chapter Fourteen The measurement of national income (II)
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
Private consumption expenditure
Government consumption expenditure
Gross domestic fixed capital formation
Increase in inventory
Net income earned abroad
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.
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)