11 Economics Name: Jose

Soemarno

MACROECONOMICS
Measures of Economic Activity
a. Distinguish between GDP and GNP/GNI as measures of economic activity.

Gross Domestic Product (GDP) is the market value of the total output of finished goods and services
produced within an economy in a period of time (usually a year). On the otherhand, Gross National
Income (GNI) similar to GNP, measures all incomes of a country’s produced goods and services both
domestic and abroad; it is essentially the country’s GDP in addition to income earned by residents
abroad subtracted by income earned by foreigners inside the country.

Consider what is and what is not included in calculating a nation’s GDP.

b. Distinguish between the nominal value of GDP and GNP/GNI and the real value of GDP and GNP/GNI.

Nominal value refers to the value of GDP and GNP/GNI unadjusted for inflation; this means that values
could go up without the economy producing more goods and services. The real value of GDP and
GNP/GNI however, considers inflation by estimating their values if prices hadn’t change due to
inflation.

c. Using an example, distinguish between total GDP and GNP/GNI and per capita GDP and GNP/GNI.

In 2018, Indonesia’s total GDP was $1,022,454 million while its per capita GDP is that value divided by
their total population on that year resulting in $3,871 per capita. Similarly, Indonesia’s total GNI was
$1,014,265 million and its per capita would be calculated by dividing total GNI from their population
(giving a value of $3,840 per capita).

d. Using an example, distinguish between GDP per capita and GDP per capita PPP.

The GDP per capita of America in 2018 was $54,541. However, its GDP per capita at PPP considers the
differences in values of currencies to contrast their absolute purchasing power which was $55,681 in
2018.

e. Examine the output approach, the income approach and the expenditure approach when
measuring national income.
In the expenditure approach, you add consumer expenditure (for goods and services) with payments for the factors of production,
government expenditure, foreign investments and finally the value of net imports (value of exports - value of imports). In the output
approach, you add the value of all goods and services produced by the firms (hence, calculating all payments for the goods and services to
the firms). In the income approach to measuring output, you calculate all payments for the different factors of production in the
economy(factor incomes to the households). Since national income seeks to calculate total factor income earned by all residents minus
income earned by non-residents, the expenditure approach would be most suitable although none of them considers any transactions that
occurs to or from foreign economies.

f. Evaluate the use of national income statistics,

including their use for making comparisons over time,
their use for making comparisons between countries and
their use for making conclusions about standards of
living.

Consider both strengths and limitations.

A country’s gross national income help indicate how the

country is performing in terms of the value of goods and services produced over time, which suggests the
rate of economic activity, the supply of goods and services and the probability that there is a larger variety of
them (probably in economies with larger GNI/GNI per Capita) at that which would help make conclusions
about the people’s standards of living. Comparing this between other countries may also act as an
encouragement or discouragement for immigrants and economic transactions through various factors. The
problem with these calculations are the fact that they only take income into account and only what is visible
(meaning that there might be underground economies or black market transactions that may not have been
included in them). Furthermore, it does not include factors such as hygiene, healthcare or inequality of
income which further dictates the people’s average standards of living.