I do not have enough information to determine the category of military expenditure or present two situations where GDP=GDE based on the given document. The document provides an overview of macroeconomics concepts like GDP, GNP, national income accounting, business cycles, inflationary and recessionary gaps, but it does not specify details about military expenditure categories or conditions for GDP=GDE.

1. Unit 04

3.  Macroeconomics is the study of the aggregate
economy which deals with performance with the
structure.
 In other words it is the study of the economy as a
whole.
 E.g. - inflation, economic growth, international
trade etc.

4.  Government intervention into the economy to
solve macro economic problems (inflation,
unemployment etc.) using macro economic policies
(fiscal, monetary, supply side, exchange rate
policy etc.) to influence the behavior of macro
economic agents (individuals, households, firms,
government, foreign sector) in order to achieve
macro economic goals (full employment, economic
growth, price stability etc.) could be simply
referred to as macro economic management.

5.  In order to perform macro economic management,
it is important to identify potential output and
actual/real output.
 Potential output-the maximum possible output, the
output when full employment exists.
 Rea/actual output- the output that is achieved by
an economy
The potential and real output can be identified by
examining the Business Cycle

6.  Business cycles are recurring periods of recession
and prosperity which are widespread throughout a
nation and which feed upon themselves.
 There are various phases of a business cycle
which can be presented as below

7. GNP
TIME
Real GNP
Trough
Peak
Output
Gaps

8.  Inflationary gap
 Is a macroeconomic condition that describes the
current level of real gross domestic product (Y)
exceeds full employment (long run equilibrium) real
GDP. In other words here Potential GDP minus real
GDP becomes a negative value.
 The effect of inflationary gap-excessive spending-
is that it will pull up output prices, leading to
demand-pull inflation. Here in this case Nominal
GDP will rise because of higher price levels, but
real GDP will not.

9. E
Y
Y=E
E=C+I+G+NX
Y1Ye
Inflationary gap

10.  Recessionary gap/unemployment gap
 Is a macroeconomic condition that describes the
current level of real gross domestic product (Y) is
lesser than full employment (long run equilibrium)
real GDP. In other words here Potential GDP minus
real GDP becomes a positive value.
 The effect of recessionary gap – deficiency of
spending- is that it will contract or depress the
economy resulting unemployment and fall in real
output.

11. E
Y
Y=E
E=C+I+G+NX
Y1 Ye
Recessionary gap

12.  A PPB shows the maximum amount achievable in
an economy given the quantity and quality of
resources on a particular day.
 The potential output is drawn for a period and
is a collection of PPBs

13.  Through
 NATIONAL INCOME ACCOUNTS

14.  National income accounting is a measurement of
aggregate or overall output or income generated
by an economy or the expenditure incurred by
economic agents to buy or consume the produced
during a given period of time. This represents
tools and methods by which policy makers’
measure economic activity and economic growth
over time.
 National Income=Output=Incomes=Expenditure
incurred

15.  To measure sectorial performance
 To measure the relative income distribution
 To measure the standard of living
 To implement economic policies
 To implement investment projects

16.  Measured for a certain time duration
 Consider both goods and services
 Valuation can be either based on current market
prices or constant prices (base year prices)
 If the product is traded in the market, valuation
is done based on the market price
 If the product is not traded in the market,
valuation is done based on cost of supplying the
product i.e. at factor price

17.  Productive economic activities
 Subsistence economic activities
 Hidden economic activities
 Expenditure on intermediate goods
 Interest paid by the government to households for
borrowings
 Non productive economic activities
 Transfer expenditure
 Second hand market transactions
 Expenditure on purely financial transactions

18. Economic
activities
Productive
activities
Through
market
Not through
the market
Black market
or illegal
Non productive
activities

19.  This occurs when a transaction is recorded more
than once or being repeated.
 To avoid this two methods are used in calculations
 Value addition method AND
 Final product method
In the final product approach we exclude the values
of intermediate goods. Intermediate goods are
goods which are made part of some final good. For
instance, tires are intermediate goods when they
are part of a car. Tires are final goods when they
are sold separately as replacement parts.
Incorporating intermediate goods to form a final
good adds value to that good.

20.  Product/ output approach
 Product approach is the method of preparing national
income accounts based on the contributions made by
producers or the final outcome during a given period of
time.
 Expenditure approach
 Expenditure approach is the method of preparing national
income accounts based on the expenditure incurred by
macro- economic agents to purchase final output during a
given period of time
 Income approach
 Income approach is the method of preparing national
income accounts based on the factor incomes earned by
households by selling factors of production as well as tax
revenue and capital depreciation during a given period of
time

21.  Value Addition Method
 Value added= final product – intermediate
goods
Industry Total product Intermediates Value Added
Timber 100 - 100
Furniture
gross
200 100 100
Polished
furniture
400 200 200

22.  Final product Method
 Final product = value of the final product +
change in intermediate goods
 Change in intermediate goods= year end stock –
stock at the beginning
 Final goods= consumer goods + investment goods

23.  1. Flour is an input (Intermediate goods) and its
value of Rs. 500 are termed as value of
‘Intermediate Consumption’.
 2. Bread is the Output and its value of Rs. 700 are
termed as ‘Value of Output’.
 3. Difference between the value of output and
intermediate consumption is termed as ‘Value
Added’. It means, that the baker has added a
value of Rs. 200 to the total flow of final goods
and services in the economy.

24.  Output approach-Final Product method
Value addition of the agricultural sector
Value addition of the industrial sector
Value addition of the service sector
GDP at market price
(-) net indirect taxes
GDP at factor price
(+)NFFI
Foreign factor income receipts
(-) foreign factor income payments
GNP at factor price
(-) depreciation
NNP at factor price

25.  Expenditure approach-Final Product method
Total consumption expenditure
Private consumption
Public consumption
Gross domestic capital formation
Gross domestic fixed capital formation
Changes in stocks
Gross domestic expenditure at market price
Net exports
Exports
(-) imports
Expenditure on GDP at market price
(-) net indirect taxes
Expenditure on GDP at factor price
(+) NFFI
Foreign factor income receipts
(-) foreign factor income payments
Expenditure on GNP at factor price
(-) depreciation
Expenditure on NNP at factor price

26. Expenditure
Production
related
Intermediate
expenditure
Final exp
Consumption
C
G
I
Non related
Transfers
Reincured
expenses

27.  PERSONAL CONSUMPTION EXPENDITURE
 Personal consumption expenditure is what
households buy (except houses). It is made of
durables (cars, appliances), nondurables (clothing,
food) and services (haircuts, doctor visits, airline
tickets). A convention is made on nondurables to be
all items which last less than a year, including
clothing. Nondurables expenditure is the most
stable component of personal consumption
expenditure.

28.  GOVERNMENT PURCHASES
 Government purchases combine all goods and
services bought by all forms of government: form
paper clips to bridges and hospitals. This does not
include government payment for work or any
transfer payment.

29.  Income approach-Final Product method
Employee compensation
Wages and salaries in kind
Employee contributions to social security
Gross profit
Corporate taxes/ business taxes
Retained profits/ business savings
Dividends
Rent
Interest
Gross self employed income/ mixed income
Gross domestic income at factor price
(+) net indirect taxes
Gross domestic income at market price
(+)NFFI
GNI at market price
(-) depreciation
NNP at market price

30.  Net foreign factor from abroad
 Net indirect taxes
 Gross domestic capital formation
 Net exports/net external demand
 Available resources
 Resource utilization
 Current price/monetary/nominal GDP
 Constant price/real GDP
 Implicit price index/GDP deflator
 Economic growth rate

31.  Per capita GDP or GNP
 Disposable national income
 Household income
 Disposable household income
 Green national accounting
 Savings
 Investments
 Gross Domestic Product
 Gross National Product
 National Income

32.  The total market value of goods and services
produced within the political boundary or
geographical boundary within a given period of
time usually one year.

33.  The total market value of all goods and services
produced by residents or citizens of a country
within a given period of time usually one year
could be simply known as Gross National Product.

34.  In the exam most of the time you will be required
to calculate the National Income.
 Here National Income refers to the Net National
Product estimated at factor cost price
 That is GNP after adjusting for depreciation and
net indirect taxes

35.  Net foreign factor income is the difference
between factor payments received from the
foreign sector by domestic citizens and factor
payments made to foreign citizens for domestic
production.
 Factor income receipts from abroad include rent,
interest, profits and dividends earned from the
resources owned by the residents.
 Factor income payments to abroad include the
rent, interest, profits and dividends paid for the
resources owned by the non-residents.

36.  When the subsidy is deducted from indirect
taxes it is called net indirect taxes.
 Here the subsidies given to producers and tax on
producers are considered
 Subsidies and taxes given n imposed on buyers are
not considered to avoid double counting.
 To get the factor price national product, net
indirect taxes should be deducted from the market
price national product.
 To find the market price national product net
indirect taxes should be added to the factor price
national output.

37.  The total expenditure incurred within the territorial
boundaries of a country, by private and public sector on
purchasing capital goods which are used to maintain and
increase existing and future production of a country
inclusive of any unanticipated changes in stock levels. The
term ‘gross’ has been used since this is the value before
making any allowances for depreciation of the capital
stocks
 Gross domestic fixed capital formation- The expenditure
incurred within the territorial boundaries of a country
during a particular period of time by private sector and
public sector on building up capital stock of a country which
facilitate enhancement of existing as well as future
production.
 Changes in stock-Changes in stock refer to the raw
material, work-in-progress, finished goods held by private
sector, public sector at the beginning of a year and those at
the end of the year.

38.  Planting, replanting and land development
 Building and other constructions
 Plant and machinery
 Transport equipment
 Other capital goods

39.  Difference between the exports and imports of
goods and non factor services is called net
exports.
 Consequences of increase in imports relative to
exports of a country should also be studied here.
 Exchange rates, domestic inflation rates,
credibility of the country too affect indirectly to
the amount of imports and exports of a country.

40.  The sum of goods and service produced within the
territorial boundaries of a country and the value
of total imported goods and non factor services.
 Available resources = GDP + imports of goods and
non factor services

41.  Refers to how the available resources of a
country have been utilized for various economic
activities.
 Utilization of resources = consumption +
investment + exports of goods and non factor
services

42.  Total output of a country estimated based on the
prices prevailing in the year for which
GDP/GNP/NNP is estimated

43.  Total output of a country of a particular year
estimated based on the prices prevailing in a
selected year known as the base year.

44.  This is the ratio between the GDP/GNP/NNP at
current prices and the GDP/GNP/NNP at constant
prices which captures the movement of the
general price level of the country.
 GDP deflator = GDP at current price/ GDP at
constant price x 100

45.  This measures the percentage growth of real GDP
of a given year relative to the previous year
= real GDP current year - real GDP previous
year
real GDP previous year

46. = real GNP
Mid year population
 This measures the growth of living standards
 Enable comparison of development among nations

47.  This is the total income that can be spent by a
nation.
National income
(+) foreign current transfers (official/ private)
received
(-) foreign current transfers (official/ private) paid
 Disposable national income

48.  Is the total income received by the household sector. It has two
components.
 Income earned on factors of production
 Income earned apart from factors of production
National income
(-) deduct
Government property income
Corporate tax
Retained profits
Depreciation
(+) add
Private foreign transfers
Local transfers to household sector
pensions
Household income

49. Disposable household income = Household Income –
Taxes + Transfers
 Transfer payments are payments which are not
connected to any productive activity.
 The typical example of a transfer payment is
social security: contributions to social security
are collected from all those who work and are
passed on to those who are retired.

50.  This takes into account the environmental costs
of development and reflects the use of precious
natural resources in the process of generating
national income.
 GNA = GNP – environmental degradation

51.  Savings can be defined as the quantum of income
that is not spent as consumption expenditure. In
other words it is the difference between income
and the current consumption expenditure.
 Savings can be evaluated in three levels
 Domestic savings
 National savings
 Foreign savings

52.  Domestic savings- domestic savings are the total
quantum of savings made by individuals, businesses
and the government within the territorial
boundaries of a country
 = GDP at market price – consumption expenditure
 = household savings + business savings + public
savings
 = investments + net exports

53.  National savings- national savings refers to the
domestic savings together with net factor income
from abroad and net private transfers
 = disposable national income – total consumption
expenditure
 = domestic savings + NFFI + net private transfers

54.  Foreign savings- foreign savings is the difference
between total investments of a country and
national savings
 = net official transfers + foreign direct
investments + foreign loans other than commercial
loans

55.  It is the expenditure incurred by an economy to
acquire physical capital assets and for the
improvement of them.
 = Gross domestic expenditure – consumption
 = Gross domestic fixed capital formation + change
in stocks
 = domestic savings + net imports of goods and non
factor services

56.  Subsistence economic activities are excluded
 Hidden economic activities are excluded
 Interest paid by the government to households
for borrowings are excluded
 Environmental effects are not considered
 Standard of living is not considered
 Time consuming
 Lengthy calculations

57.  What is the category of military expenditure?
 Present two situations where GDP=GDE.