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

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

YEARNOMINAL GDP $B INFLATION INDEX POPULATION (M)
201479010040
201587010741
201694011842
2017100012243
  1. What is the base year?
  2. What was the value of Y in real terms in 2016 compared with the base year?
  3. Calculate real Y per head in 2015.
  4. Describe and comment on the state of the economy in 2014 in comparison with 2017.