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Economics > 2.1 Measuring economic activity > Flashcards

2.1 Measuring economic activity Flashcards

(56 cards)

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1
Q

How man sectors are there in a closed and simple economy

A

Household and firms

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2
Q

What does it mean if it is a simple economy

A

no government intervention

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3
Q

What does it mean if it is a closed economy

A

no foreign sector

no exports and no imports

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4
Q

Four factors of production

A

labour, capital, land and enterprise

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5
Q

What is the output flow

A

households give factors of production to the firms and firms use them to produce the output of good and services

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6
Q

Income flow

A

Land - rent
Labour - wages
Capital - Interest
Enterprise - Profit

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7
Q

Expenditure flow

A

household have expenditure on goods and services

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8
Q

What do you assume in a simple and closed economy

A

households spend all income they earn
no foreign markets
no savings and no investment

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9
Q

What are leakages

A

Savings
Import expenditure
Taxes

SIT

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10
Q

What are injections

A

Government spending
Investment
export expenditure

GIE

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11
Q

what do injections add to

A

the expenditure flow

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12
Q

what do leakages add to

A

the income flow

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13
Q

what are in a complex and open economy

A

Financial sector - savings and investment
government sector - taxes and government expenditure
Foreign sector - exports and imports

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14
Q

What does it mean if the sum of all leakages > sum of all injections

A

Savings + taxes + import expenditure > investment + government spending + exports

Circular flow of income will decrease

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15
Q

What does it mean if the sum of all leakages < sum of all injections

A

Imports, savings and taxes < exports, government spending and investment

The circular flow of income will increase

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16
Q

What should happen in an equal economy in theory

A

the output flow, income flow and expenditure flow should equal each other

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17
Q

How is national income measured

A

GDP = gross domestic product

Three different methods

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18
Q

Different methods of measuring GDP

A

The output method

The income method

The expenditure method

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19
Q

What is the output method

A

sum of all the value added all the firms in the economy

deduct the cost of inputs

defines GDP as the ‘total monetary value of all the final goods and services produced within an economy in a year

national output

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20
Q

What are the different production sectors int he economy

A

Agriculture and mining (primary sector)

Manufacturing (secondary sector)

Services (tertiary sector)

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21
Q

What is the income method

A

measures the value of all the incomes earned in the economy

GDP = wages + interest + rent + profit = national income

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22
Q

What is the expenditure method

A

Measures the value of all the spending on goods and services in the economy

Calculates by summing up the different factors
Consumption + investment + Government spending + foreign exports minus imports

C + I + G + (X - M) = national expenditure

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22
Q

What is the expenditure method

Study These Flashcards
A

Measures the value of all the spending on goods and services in the economy

Calculates by summing up the different factors
Consumption + investment + Government spending + foreign exports minus imports

C + I + G + (X - M) = national expenditure

23
Q

In theory what should be said about GDP

Study These Flashcards
A

National output = national income = national expenditure

However, there are some inevitable inaccuracies in practice.

24
What is GNP/GNI
The gross national product/Gross national income the total income that is earned by a country's factors of production regardless of where the assets are located
25
What is GDP
the total of all economic activity in a country regardless of who owns the productive assets
26
What is the difference between GDP and GNP
GDP is within a certain location GNP is decided by nationality no matter where they are located
27
How do you calculate GNI
GNI = GDP + (income earned from assets abroad - income paid to foreign assets operating domestically GNI = GDP + net property income from abroad
28
What is inflation
a rise in the general price level across the economy
29
What is real GDP
Nominal GDP adjusted for inflation
30
What is a problem with comparing GDP over time
calculations overstate the value of GDP because of inflation GDP measured at current prices is the nominal GDP so Real GDP can be used instead
31
How do you calculate GDP price deflator
GDP price deflator 100 + interest rate/ 100 x 100
32
How do you convert nominal GDP to real GDP
Real GDP = Nominal GDP/GDP deflator x 100
33
What is the difference between total GDP and GDP per capita
Total is the total GDP or total GNI/GNP measures total economic activity of a country Per capita is the total/ size of a population and measures standard of living of a country per capita is more appropriate for comparing between countries in terms of standards of living
34
Why is national income statistics beneficial
1. a useful indicator of standard of living - real GDP per capita 2. Useful for making comparisons over time - real GDP and economic growth 3. Useful for making comparisons between countries - real GDP per capita 4. serves as a report card about the performance of economy - economic growth, government policy, objectives and adjistments
35
Why is national income statistics beneficial
1. a useful indicator of standard of living - real GDP per capita 2. Useful for making comparisons over time - real GDP and economic growth 3. Useful for making comparisons between countries - real GDP per capita 4. serves as a report card about the performance of economy - economic growth, government policy, objectives and adjistments
36
What are disadvantages of national income statistics
1. Does not reflect distribution of income and wealth - measures the total but h=not how much everyone gets 2. Does not show differences in the cost of living 3. Does not reflect extent of social welfare benefits and the variations between countries 4. Fluctuating exchange rates make international comparisons of GDP over time less accurate and less meaningful 5. DO not reflect the composition of national output - USAs very large penguin on military technology compared to Europes very large spending on welfare benefits 6. Does not account for negative externalities generate sin producing this national output - pollution, noise, stress, environmental destruction (Green GDP is more common nowadays, measures the GDP that accounts of environmental destruction) 7. Does not account for size of the informal economy - unofficial production of goods and services - DIY, goring own food (developing countries) 8. May be useful in measuring standard of living but not really useful indicator of quality of life - growth vs development.
37
What does the business cycle show
described the short-term fluctuations in economic activity in a country over time which creates a long term trend of growth in the economy
38
what are the four parts of the business cycle
recession trough recovery boom
39
What are the axis of the business cycle
shows the relationship between the real GDP (dollars usually) over time
40
What is a recession
the fall in GDP that lasts over two or more consecutive quarters during a recession, Consumption spending, investment and net exports gradually fall unemployment gradually rises business and consumer confidence levels gradually fall
41
What is a trough / slump
occurs at the bottom of a recession in the business cycle Consumption, investment and net exports are low unemployment is high business failures are common and consumer confidence levels are low Government may ride to help economy recover from the recession during this it is a period of contraction
42
What is a recovery
Real GDP begins to rise, and the economy begins to recover from a slump/trough Consumption + investment + net exports gradually rise more employment opportunities are created, unemployment falls it is a period of expansion in economic activity
43
What is a boom
the peak of the business cycle economic activity is at its highest level, economic growth rises unemployment is very low business and consumer confidence levels are high often there is inflation Consumption, investment, government and net exports are usually high as well this is the end of the expansion phase, a short term fluctuation
44
What are recession, troughs, recoveries and booms
they are short term fluctuations
45
what is the long term trend in a business cycle
The potential output, or potential GDP of the economy - economic growth increases the long-term productive capacity of the economy - shifts the PPC outwards - exogenous shocks like infections diseases, natural disasters, like earthquakes, global financial crises, can all negatively affect the potential growth of an economy
46
what is the general assumption of the long term trend of the economy
assuming there are no exogenous shocks, the long term trend is expected to be in a trend of growth in an increase in GDP over time
47
Distinguish between a fall in GDP and a fall in GDP growth
Fall in GDP causes a recession if it occurs over two consecutive quarters A fall in GDP growth means the economy is still growing but at a sower rate than before
48
Advantages of GDP
- allows for comparison - informs policy makers - gives indication of average income
49
disadvantages of GDP
- overestimates the quality of life - does not account for disparity in income distribution - contains inaccuracies - does not account for improvements in quality of output
50
What doe PPP tell us
the size of an economy by its power to purchase goods and services within that country.
51
Alternate measures of well-being
``` World happiness report OECD better life index Gross national happiness Happy planet index Green GDP ```
52
What is the world happiness report
used as an indicator of people's happiness in the measures of economic development. Measured using the cantorial ladder where they rate their happiness
53
What is the OECD better life index
``` measures 11 indicators: housing income jobs community education environment civic engagement health life satisfaction safety work-life balance ```
54
What is the gross national happiness
looks at many other different aspects that are said to be equally as important
55
What is the happy planet index
uses four indicators to demonstrate how effieicnetly residents of different countries are suing environmental resources to lead long happy lives wellbeing x life expenstancy x inequality of outcomes / ecological footprint

Economics (35 decks)

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