REVIEW QUESTIONS
1. What are the three approaches to measuring economic activity? Why do they give the same answer?
2. Why are goods and services counted in GDP at market value? Are there any disadvantages or problems in using market values to measure production?
3.
What is the difference between intermediate and final goods? In which of these categories do capital goods, such as factories and machines, fall? Why is the distinction between intermediate and final goods important for measuring GDP?4. How does GDP differ from GNP? If a country employs many foreign workers, which is likely to be higher: GDP or GNP?
5. List the four components of total spending. Why are imports subtracted when GDP is calculated in the expenditure approach?
6. Define private saving. How is private saving used in the economy? What is the relationship between private saving and national saving?
7. Describe the three approaches to measuring the volume of economic activity that occurs during a period of time and explain why they all lead to identical measurements.
8. What is the most significant difference between GDP and GNP for countries that have many citizens who work abroad?
9. How are net exports, net factor payments from abroad, and the current account balance related?
10. Explain the differences among the nominal interest rate, the real interest rate, and the expected real interest rate. Which interest rate concept is the most important for the decisions made by borrowers and lenders? Why?
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