There are a number of measures of aggregate economic activity, such as GDP, GNP,
ID: 1169455 • Letter: T
Question
There are a number of measures of aggregate economic activity, such as GDP, GNP, national income, personal income, and disposable personal income. Each of these measures can be a good indicator depending on the issue under consideration. For each of the following issues, give your reasons for selecting one of the measures just mentioned as the best indicator to use in studying the issue:
a.
the proportion of income households save
b.
the relative share of earnings going to labour versus capital
c.
the total output of new final goods and services.
a.
the proportion of income households save
b.
the relative share of earnings going to labour versus capital
c.
the total output of new final goods and services.
Explanation / Answer
(a) Disposable income is a measure of income of the households who saves and consume. But the income either he saves or consume, the total will always be equal to the income left with the individual after paying taxes. The best measure in this case will be to calculate disposable income as it will measure also the income he saved and held idle.
(b) National income measures all income to the factors of production whether capital or labor.
(c) GDP measures the value of goods and services produced in the economy. The intermediate value of goods and services are ignores in order to avoid double counting of value of intermediate goods.
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