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Approaches to Measuring Macroeconomic Activity
Q.1.Approaches to Measuring Macroeconomic Activity There are two approaches to measuring a country’s macroeconomic activity, which are Gross Domestic Product, and National Income. What do each of these approaches measure. List at least one advantage and disadvantage of each approach.
Q.2 Write reply for this article (Dylla)
There are two approaches to calculating A countries GDP or National Income. Per the lesson They are both supposed to agree and come to the same monetary conclusion. The first approach is the income approach. The income approach is created by measuring the wages of labor, rental payments, interest from capital, and profits from entrepreneurial activities, also known as W.R.I.P.
The other approach is the expenditure approach which measures the gross consumption, investments, and government spending also know as C.I.G.
As with most concepts in accounting putting the numbers down on paper is the main objective. Organizing them to analyze the information is important. The difficulty with the national income approach is that with more people you create more income, but you also create more problems. One of these problems is counting all of the wages, all of the rent accumulated, all of the interest on capital created, and all of the entrepreneurial activities envisioned throughout the entire year, without counting any of them twice or, being underreported or overreported. Some individual’s income is underreported because they’re fees are paid in cash. Some are over reporting because entrepreneurial abilities are exaggerated. It involves a lot of labor and resources just to collect the information. The advantage over the other method is it does not include government spending which is always difficult to account for and you don’t have to worry about imports or exports.
The advantage of the expenditure method is there are fewer individual sources of income to measure. It measures the total production of goods and services instead of trying to include every single income. The disadvantage is you must sort through the imports and exports such as with foreign cars. Some cars parts and with other consumer goods are created overseas and then are assembled here to produce a car or truck. This causes confusion in the equation. The same is true with investments. Approaches to Measuring Macroeconomic Activity
Q.3 Write reply for this article (Wendy)
Gross Domestic Product (GDP) is a measure of the monetary value of final goods and services produced within a country’s borders during a given period of time. Typically, GDP is measured on an annual basis, but can also be measured quarterly.
National Income (NI) is a measure of the value of goods and services produced by a country during a financial year, regardless of where the production occurred or where the money was earned. National Income takes into account the monetary value of goods and services produced or offered outside of the traditional borders of the home country.
The advantages of measuring GDP is that it provides a snapshot of the economy and allows policy makers to determine whether the economy is expanding or contracting, providing the opportunity to set programs and policies to correct deficiencies. It serves as an overall scorecard of economic health within the county.
The advantages of measuring NI is that it includes information by industry sector and also includes income derived from operations outside the borders of the country.
The disadvantages of GDP measurement is that it doesn’t include any of the output of companies operating outside the borders. It also does not include any work or monetary value attributed to household or volunteer activities. It also does not factor in the sustainability of the GDP measures (for example, are we depleting natural resources in search of economic advancement? Is that sustainable?).
Q.4 Write reply for this article (Alan)
The GDP or the gross domestic production measures the total goods and services produced within the national boundary at a given period. It measures all the good and services as long as they are produced within the national boundary.
The national income is GDP + total income earned by the national across the world – total income earned by the foreign national in the national boundary. It measures the income earned by the national across the world.
AN advantage will be:
- GDP covers all the aspects of production in the nation, and it is widely accepted across the world, so it can be used for comparison as well.
- GNP measures how productive the nationals are in the world and how much the national potential in the world is. Approaches to Measuring Macroeconomic Activity
Disadvantage:
- GDP ignores the impact of the economic growth in the environment.
- GNP can be misleading as it also includes the Data which are not at all in relation to the national production.