Calculation Methods Flashcards

When calculating GDP using the expenditure approach, why are transfer payments like Social Security excluded from government spending (G)?

Answer: They represent redistribution, not purchase of new goods or services

Transfer payments redistribute income without corresponding production of goods or services, so including them would overstate GDP.

Which scenario would cause a country's GDP to rise without any change in actual production?

Answer: An increase in the price level (inflation)

Nominal GDP includes price effects, so inflation raises nominal GDP even if real output is unchanged.

In GDP accounting, how is owner-occupied housing handled?

Answer: An imputed rental value is estimated and counted as output

The BEA imputes a rental value for owner-occupied homes so that homeowners and renters contribute equivalently to GDP.

Which of the following economic activities is EXCLUDED from official U.S. GDP calculations?

Answer: Illegal drug sales

Illegal activities are excluded from official U.S. GDP because they are unreported and unrecorded, though some countries do attempt to estimate them.

The 'leakages and injections' framework of GDP states that in equilibrium:

Answer: Savings + Taxes + Imports = Investment + Government Spending + Exports

In the full circular flow, leakages (S + T + M) must equal injections (I + G + X) for the economy to be in equilibrium.

Per capita GDP is calculated by dividing GDP by:

Answer: The total population

GDP per capita = GDP ÷ Total Population, providing a rough measure of average living standards.

Which method is most commonly used by national statistical agencies to estimate GDP for service sectors where output is hard to measure?

Answer: Using input measures such as hours worked or number of employees

For hard-to-measure services like government and education, statisticians often proxy output using input measures such as labor hours or employment counts.