Measuring Total Output and Income

Read this chapter, to learn about measuring domestic output, and attempt the "Try It" exercises. The material in this chapter concentrates on the four components of GDP: consumption, investment, government purchases, and net exports. Pay attention to the definition of these components as it may differ from your expectations. For example, note that Investment does not refer to the common knowledge definition of investment as in the trading of stock and bonds. Instead, the Investment component refers mainly to the purchase of physical machinery and equipment needed in the production of goods and services. You will revisit certain sections of the chapter later in this unit.

Review and Practice


  1. Given the following nominal data, compute GDP. Assume net factor incomes from abroad = 0 (that is, GDP = GNP).

    Nominal Data for GDP and NNP $ Billions
    Consumption 2,799.8  
    Depreciation 481.6
    Exports 376.2
    Gross private domestic investment 671.0
    Indirect taxes 331.4
    Government purchases 869.7
    Government transfer payments 947.8
    Imports 481.7

  2. Find data for each of the following countries on real GDP and population. Use the data to calculate the GDP per capita for each of the following countries:

    1. Mozambique
    2. India
    3. Pakistan
    4. United States
    5. Canada
    6. Russia
    7. Brazil
    8. Iran
    9. Colombia

  3. Now construct a bar graph showing your results in the previous problem, organizing the countries from the highest to the lowest GNP per capita, with countries on the horizontal axis and GNP per capita on the vertical axis.

  4. Suppose Country A has a GDP of $4 trillion. Residents of this country earn $500 million from assets they own in foreign countries. Residents of foreign countries earn $300 million from assets they own in Country A. Compute:

    a.  Country A's net foreign income.
    b.  Country A's GNP.

  5. Suppose a country's GDP equals $500 billion for a particular year. Economists in the country estimate that household production equals 40% of GDP.

    a.  What is the value of the country's household production for that year?
    b.  Counting both GDP and household production, what is the country's total output for the year?

  6. A miner extracts iron from the earth. A steel mill converts the iron to steel beams for use in construction. A construction company uses the steel beams to make a building. Assume that the total product of these firms represents the only components of the building and that they will have no other uses. Complete the following table:

    Company Product Total Sales Value Added
    Acme Mining iron ore $100,000 ?
    Fuller Mill steel beams $175,000 ?
    Crane Construction building $1,100,000    ?
    Total Value Added     ?

  7. You are given the data below for 2008 for the imaginary country of Amagre, whose currency is the G.

    Consumption 350 billion G
    Transfer payments 100 billion G
    Investment 100 billion G
    Government purchases 200 billion G
    Exports 50 billion G
    Imports 150 billion G
    Bond purchases 200 billion G
    Earnings on foreign investments 75 billion G
    Foreign earnings on Amagre investment 25 billion G

    a.  Compute net foreign investment.
    b.  Compute net exports.
    c.  Compute GDP.
    d.  Compute GNP.