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ECON 102 > week 14 > Flashcards

week 14 Flashcards

1
Q

how is the state of the economy measured

A

GDP
the market value of final goods and services produced in a country in a given period
aggregate quantities of many goods and services by adding up market values

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2
Q

why has GDP been critised

A

does not accurately reflect factors such as distribution of income and the effect of economic growth on the environment

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3
Q

what is GDP

A

the market value of final goods and services produced in a country in a given time period

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4
Q

what is market value

A

convenient way to aggregate the many different goods and services produced in a modern economy

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5
Q

what are non-market goods included in GDP

A

government goods and services are not sold in the market
increase output, have known quantities but unestablished prices
are included in GDP

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6
Q

what are final goods and services

A

consumed by the ultimate user
end products in production
included in GDP

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7
Q

what are intermediate goods and services

A

used up in production of final goods
not included in GDP to avoid double counting

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8
Q

what is a capital good

A

a good that can be final and intermediate, a long lived good which is produced and produces other goods and services
eg machinary

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9
Q

what is value added

A

market value of product - cost of inputs from other firms

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10
Q

what are the four categories in GDP

A

households
firms
governments
foreign sector

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11
Q

how can GDP be calculated

A

adding up market value of all the final goods and services produced domestically
or
adding up total amount spent by each of the four groups on final goods and services and subtracting imported goods and services

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12
Q

what is consumption expenditure

A

spending by households for goods and services

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13
Q

what are consumer durables

A

long lived consumer goods
cars, furniture

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14
Q

what are consumer non-durables

A

shorter lived goods
clothing, food

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15
Q

what are services

A

largest component of consumer spending
education, haircuts

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16
Q

what is investment

A

spending by firms on final goods and services

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17
Q

what is business fixed investment

A

purchases of new capital goods
eg property

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18
Q

what is residential investment

A

construction of new homes and apartment buildings

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19
Q

what is inventory investment

A

change in unsold goods to the company’s inventory
goods that are produced but not yet sold
can be positive or negative

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20
Q

what is financial investment

A

purchases of stocks, bonds and financial assets
does not correspond to increases in production capacity in most cases (new stock issues is the exception)

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21
Q

what is economic investment

A

the increase in the capital goods used to produce other goods
value based on purchase price of capital goods not stock value

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22
Q

what are government purchases

A

final goods and services bought by national and local governments
excludes transfer payments

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23
Q

what are transfer payments

A

made by governments, but the government receives no goods or services
eg social security

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24
Q

how do you calculate net exports

A

exports - imports

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25
Q

what are exports

A

goods and services produced domestically and sold abroad

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26
Q

what are imports

A

goods and services produced abroad and purchased domestically

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27
Q

what is the GDP expenditures equation

A

Y = C + I + G + NX
Y - GDP/output
C - consumption expenditure
I - Investment
G - government purchases
NX - net exports

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28
Q

what is the income approach to GDP

A

GDP = labour income + capital income
labour income is wages, salaries and benefits
capital income is physical capital and intangibles such as profits, rent

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29
Q

what is real GDP

A

a measure of GDP in which the quantities produced are valued at the prices in a base year, rather than at current prices
measures actual physical volume of production

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30
Q

what is nominal GDP

A

a measure of GDP in which the quantities produced are valued at current-year prices
measure current money value of production

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31
Q

what are the observations on real and nominal GDP

A

nominal and real usually increase each year
nominal can go up and real go down (fewer goods and services produced and prices increase faster than output decreased)
nominal GDP will be smaller than real GDP if prices are less than in base year
real GDP could rise and nominal fall but this is rare

32
Q

how does GDP effect economic wellbeing

A

GDP captures only those goods and services that are sold in markets
leisure is not sold in markets
GDP may understate economic wellbeing
real GDP may be flawed measure of well-being
it only values market transactions
maximising GDP will not necessarily maximise national well-being

33
Q

what are nonmarket economic activities

A

household production and volunteer services
difficult to value these services
important in poor countries

34
Q

what is the underground economy

A

all unreported transactions, legal and illegal
includes casual labour that is often paid in cash and services such as drug dealing and prostitution
not included in GDP

35
Q

what is environmental quality

A

clean up activities to restore the environment to its original condition, included in GDP
gets environment back to starting point
deterioration in the quality of air and water would more than offset the gains from greater production

36
Q

what is resource depletion

A

no adjustment is made for the decline in resource availability when mining or other harvesting is done
environmental quality and resource depletion are difficult to value

37
Q

what are some intangibles GDP does not account for

A

crime rates
traffic congestion
civic organisations
open space
sense of community

38
Q

why does GDP not capture the effects of income inequality

A

cannot differentiate between an unequal and an egalitarian society if they have similar economic sizes
policymakers need to account for rising inequality when making decisions

39
Q

what are the limitations of GDP

A

does not tell us about personal wellbeing, depletion of natural resources, quality of life or ecological deficit
short term growth leads to long term damage to our health, wealth and wellbeing

40
Q

what features of GDP can be used as a welfare measure

A

material standard of living - more goods and services
health and life expectancy - improved health measures in industrialised countries
education - literacy and school enrolment rates

41
Q

what is the kuznets curve

A

the relationship between economic growth and inequality
initial stage of economic growth - inequality increases as investment opportunities create a wealthy class
further industrialisation - democratisation, increases in education cause inequality to decline

42
Q

what is the labour force

A

the total number of people employed and unemployed in the economy
employed + unemployed

43
Q

how do you calculate unemployment rate

A

unemployed / labour force

44
Q

how do you calculate participation rate

A

labour force / population 16+

45
Q

what does it mean if you are employed

A

you work full or part time or are on sick or vacation leave from a regular job

46
Q

what does it mean if you are unemployed

A

not employed but are actively seeking employment

47
Q

what does it mean if you are out of the labour force

A

you are not employed or actively seeking employment

48
Q

what is unemployment rate

A

the percentage of the labour force classified as unemployed

49
Q

what is participation rate

A

the percentage of the working population in the labour force

50
Q

what are the three types of unemployment

A

frictional, structural and cyclical

51
Q

what is structural unemployment

A

the long term and chronic rate of unemployment that exists even when the economy is producing at the normal rate

52
Q

what can cause structural unemployment

A

lack of skills
language barriers
discrimination
economic changes can create long term mismatch between jobs and skills

53
Q

what are the costs of structural unemployment

A

causes loss of income to workers and loss of output for firms

54
Q

what is frictional unemployment

A

short term unemployment associated with the process of matching workers with jobs
can take time

55
Q

what is cyclical unemployment

A

extra unemployment that occurs during recessions
occurs when the economy experiences a decline in the demand for goods and services it produces

56
Q

what are the economic costs of unemployment

A

lost wages and production
decreased taxes and increased transfers

57
Q

what are the psychological costs of unemployment

A

individual self esteem
family stress of decreased income and increased uncertainty

58
Q

what are the social costs of unemployment

A

potential increases in crimes and social problems

59
Q

what is an unemployment spell

A

the period during which an individual is continuously unemployed

60
Q

what is duration of unemployment

A

the length of an unemployment spell

61
Q

what is long term unemployment

A

being out of work for 6 months +

62
Q

what are the outcomes of short term unemployment

A

finding a permanent job after searching for a few weeks
leave the labour force
get a short term job that leads to unemployment again - chronically unemployment which has similar economic costs to long term unemployment

63
Q

what are discouraged workers

A

would like to have a job but they have not looked for work for 4 weeks+ as they believe there is no work available

64
Q

what are involuntary part time workers

A

people who like to work full-time but cannot find a full-time job

65
Q

what is capitalism

A

characterised by private ownership of productive assets

66
Q

what is laissez-faire capitalism

A

great reliance on exchange as a mode of coordination

67
Q

what is administrative capitalism

A

substantial reliance on public administration as a mode of coordination

68
Q

what is socialism

A

system that relies more on public ownership

69
Q

what is administrative socialism

A

state ownership predominates and activity is coordinated primarily by public adminstration

70
Q

what is market socialism

A

state ownership predominates but economic activity is coordinated through markets

71
Q

what is the welfare state

A

a form of economic and social organisation
a system in which the state plays a role for the protection and welfare of its citizens
combination of collectivism, capitalism, social welfare policy and democracy

72
Q

what are policy debates

A

right argue that free markets are most efficient way to achieve economic prosperity
left argue that gov intervention to boost aggregate demand is necessary to bring economy towards full employment

73
Q

what is neoliberalism

A

distinguished from liberalism
concerned with economic freedom
individual is solely responsible for the consequences of their own
state involvement leads to totalitarianism
individuals are rational and know their own needs better than the state

74
Q

what is the neoliberal agenda

A

supremacy of the individual and commercial interests over that of society
includes free trade, privatisation, shrinking of the state, large tax cuts and balanced budgets

75
Q

what are the benefits of neoliberalism

A

economic efficiency - reduce role of govs, markets weed out inefficient companies and allowing those that produce goods at a reasonable price to succeed
cheaper goods - free markets and free trade between nations, increases levels of competition and puts pressure on firms to reduce price and increase efficiency
lower taxes - reduce influence and role of government, reduces the need for high levels of taxes
higher levels of investment - incentives for businesses to improve efficiency

76
Q

what are the costs of neoliberalism

A

deregulation, shrinking trade unions, privatisation and smaller states - linked to rising inequality
income stagnation in bottom half of distribution
inequality undermines democracy
neoliberal model also intensifies climate change, legislation seen as an attack on individual freedom

ECON 102 (26 decks)

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