Chapter 1 Flashcards
(20 cards)
what are purchasing power parities?
reflects how much you can buy of a given consumption basket for one unit of the currency in each country
how do we measure real GDP? How is it calculated?
GDP in fixed prices - we measure how much GDP would have increased if quantities had been what they actually were but prices had been the same as the previous year. G t+1 = Yt+1/Yt - 1
How is inflation measured? how do we calculate the GDP deflator?
we measure how much more we would have to pay to buy the same consumption basket as last year.
GDP deflator = nominal GDP/real GDP
what is the GDP function? what percentage of GDP are they in most OECD countries?
Y = C + I + Cg + Ig + (X - IM)
consumption = 50 -60%
c g = 20 - 25%
invest = 20%
Ig = around 2%
proportion of X and IM varies substantially from <20% to US to >50% in smaller countries
how is savings calculated? what is it used for?
Savings = NDI - Consumption
used for real investments or net lending
what is net lending? how is it calculated?
net lending = savings - real investment
= NX + Yf + Try
= current account
what is net production?
net production = production - consumption of capital
what is primary incomes from rest of world? How do we calculate GNI from this?
wages from working abroad and capital income from assets abroad.
GNI at market price = NPIRW + GDP
the difference between income and disposable income? How do we calculate national disposable income?
taxes and transfers (secondary incomes)
GDP + NPIRW - consumption of capital = NDI
what fraction of gross income goes to labour income and capital income? How is a capital income used?
2/3 labour income (wages/salaries and social insurance fees)
1/3 capital income
roughly 50% used to replace depreciated capital (15% of GDP)
rest of paid out in interest and dividends or kept as retained earnings
whats the difference between endogenous and exogenous variables?
endogenous - explained within the model
exogenous - taken as given can use model to understand and how change in one exo affects the end if their exo held constant
what are the national accounts? what do they show?
shows how much is produced and in what sectors production takes place, how income is distributed and how goods and services are used for consumption and investment by the private sector and gov’t
what is annual GDP?
sum of all value added produced in given year
Whats the difference between market and basic price? how is gross value added at basic price calculated?
taxes – subsidies (taxes included in market price)
GVA @ basic price = GDP - Indirect tax + subsidies
what are the 3 markets and 3 decisions makers in our macro model?
goods market
labour market
financial market
firms
households
policymakers
what do firms and households have to choose?
firms set wages and prices, choose inputs of capital and labour to max profits
households choose between consuming today and saving for consumption in future
open economy - HHs choose between domestic or foreign goods. Investors choose between different currencies
what are the 6 key economic decisions to analyse?
price setting
wage setting
investment
consumption
HH choice goods produced at home or imports
foreign investor lending in different currencies
what does PPP account for? when will the PPP adjustment increase/decrease GDP per capita?
that price level generally lower in poor countries due to low labour costs
PPP increases GDPPC for poor countries
PPP decreases GDPPC for richer countries
PPP defined relative to US price level so GDPPC at market exchange rate = GDPPC for PPP
what is the definition of net national disposable income at market price?
net national DI = net GDP @ market price + Y^f + TR^f
