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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.

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.