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.

YEAR NOMINAL GDP $B INFLATION INDEX POPULATION (M)
2014 790 100 40
2015 870 107 41
2016 940 118 42
2017 1000 122 43
  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.