National income

Question 1

  1. What is meant by 'value added'?

  2. Distinguish between nominal and real national income.

  3. Define GDP per head.

  4. Calculate the real growth rate for a country,  as an annual %, if in a given year the value of nominal income rises from $800b to $850, and the index of inflation rises to 104 during that year - assume it started the year at 100.

Question 2

Look at the following data

National Income
Consider the data of the National Income, inflation and population of a hypothetical economy.

YEAR NOMINAL GDP $B INFLATION INDEX POPULATION (M)
2010 790 100 40
2011 870 107 41
2012 940 118 42
2013 1000 122 43

  1. What is the base year?

  2. What was the value of Y in real terms in 2012 compared with the base year?

  3. Calculate real Y per head in 2011.

  4. Describe and comment on the state of the economy in 2012 in comparison with 2010.