2.1 The Level of Overall Economic Activity

Question 1

How does the country’s economy work?

Answer 1

Circular flow model

Question 2

What are leakages?

Answer 2

They take money out of the country which disrupts the circular flow of income. (S, T, M)

Question 3

What are Injections?

Answer 3

They put money into the country’s economy to improve the circular flow of income. ( I, G, X expenditure)

Question 4

What does macroeconomics measure?

Answer 4

GDP (Gross Domestic Product) The dollar value of all final goods and services produced within a country’s borders within a year

Question 5

GDP = ?

Answer 5

Consumption spending + Investment + Government + ( X - M ) Net Exports

Question 6

Define consumption spending

Answer 6

All household purchases of final goods and services in a year

Question 7

Define investment

Answer 7

Spending by firms on capital goods

Question 8

Define government

Answer 8

Spending by government on factors of production (does not include transfer payments)

Question 9

Define net exports

Answer 9

Total value of exports minus the total value of imports

Question 10

What are not included in GDP?

Answer 10

1. Intermediate goods
2. Non-production transactions (financial transactions, used goods)
3. Non-market activities

Question 11

What is the spending on final goods and services produced in a given year?

Answer 11

Expenditure Approach

Question 12

Income that resulted from selling all final goods and services produced in a given year?

Answer 12

Income approach

Question 13

All values added by all firms in an economy

Answer 13

Output approach

Question 14

What is GNI?

Answer 14

Gross National Income (formerly known as Gross National Product GNP)
It is the total income earned by a country’s factors of production regardless of where the assets are located
GNI = GDP + net foreign income

Question 15

Define nomial GDP or GNI

Answer 15

The total dollar for that year

Question 16

Define real GDP or GNI

Answer 16

Adjusts for inflation

Question 17

GDP per capita = ?

Answer 17

Australia’s total GDP/ Australia’s population

Question 18

What is green GDP?

Answer 18

To account for what GDP does not
Green GDP = GDP minus the value of environmental degradation minus P (all expenditures resulting from cleaning up pollution, environmental damage, heath-care costs)

Question 19

State the implications of Green GDP

Answer 19

• lower growth rates
• high growth rates would necessitate expenditure to protect and even enhance the environment