The fundamental national accounting identity we studied in class states that

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The question asks about the fundamental national accounting identity studied in class. 
Option 1: 'Value Added is equal to Exports minus Imports' is incorrect because the national accounting framework does not state that GDP by value added equals net exports. Exports minus imports is part of the expenditure approach (net exports) but not the identity that links value added, expenditure, and income in the way described. 
Option 2: 'Investment is equal to Government Spending' is not accurate. Investment refers to spending on capital goods that will generate future production (like business fixed investment and housing), whereas Government Spending is a separate component of aggregate expenditure. These are distinct concepts and are not equal in the identity. 
Option 3: 'Real GDP is equal to Nominal GDP divided by the Consumer Price Index' is a common simplification, but it is not the precise definition used in the national accounting framework. Real GDP is nominal GDP adjusted by a price index to remove the effects of inflation; typically the correct adjustment uses a price index like the GDP deflator, not simply dividing by the CPI. This makes the statement misleading and incorrect as the formal identity. 
Option 4: 'GDP by Value Added is equal to Expenditure which is equal to Income' correctly reflects the fundamental national accounting identity: GDP can be measured via value added (sum of value added across all sectors), and it also equals total expenditure, which in turn equals total income earned in the economy. These equalities are the core accounting relationships that tie production (value added), spending, and income together in the circular flow. 
In sum, the first three options misstate aspects of the relationships among GDP components, while the fourth option accurately captures the core identity linking value added, expenditure, and income in the national accounts.

ECON3_WI25_A00 Online Quiz 1

The fundamental national accounting identity we studied in class states that

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ECON3_WI25_A00 Online Quiz 1

The fundamental national accounting identity we studied in class states that

View Explanation

Log in for full answers

Similar Questions

Suppose GDP is $300 million, depreciation is $10 million, net payments to the rest of the world are $30 million, and statistical discrepancy is $8 million. What is the value of national income?

For an economy as a whole,[Fill in the blank]

Which of the following purchases do national income accountants consider to be investment?

Given the information from the table below, the GDP is equal to _____ National Income $50,000 Net Income Payments to Rest of the World $3,000 Consumption of fixed capital $5,000 Statistical discrepancy $1,000

Gross national income consists of GDP plus Blank ______, without including any payments made to those who do not live in the country but who contribute to the domestic economy.

GNP equals GDP ______ income earned domestically by foreigners ______ income that nationals earn abroad.

The purchase and sale of financial securities (i.e., bonds and/or stocks of shares) is not included in calculations of investment spending because ________.

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GNP equals GDP income earned domestically by foreigners income that nationals earn abroad.