Chapter 2 Flashcards
Why is GDP an imperfect measure of economic activity?
- Measures production rather than consumption
- The market value does not measure “use value”
- Does not account for distribution
- Misses measure of non-market activity
- Misses production generating income abroad
- Some GDP growth is associated with ‘bads’ (pollution)
Why is GDP a useful measure of economic activity?
There is widespread measurement across all national economies with few other alternatives.
Why is Purchasing Power Parity a better measure for international comparisons
it converts dollars into purchasing power to better measure the quality of life in a country
What is an average growth rate of GDP?
around 2.5 - 3%
What is a reasonable inflation rate?
around 1%
Why are imports subtracted from the national income identity?
Because they are hidden elements of Consumption, Investment, Government Spending, and Exports
What was US nominal GDP in USD in 2023
27 trillion
What percentage was consumption of the US GDP in 2023
70%
Current Account
record of all international transactions for goods and services, income payments and receipts, and unilateral transfers.
What account (BoP) is used in the national income identity for Gross National Product
current account
Financial Account
record of all international transactions for assets, including bonds, treasury bills, currency, and more.
Merchandise Trade Account
Record of all international transactions for goods only
Services Account
Record of all international transactions for services only
Goods and Services Account
Record of all international transactions for goods and services only
income payments
represent the money earned by foreign residents on their investments in the United States
income receipts
represent the money earned by domestic residents on their investments abroad
primary income
income payments plus income receipts
unilateral transfers
represent payments made or received that do not have an offsetting product flow in the opposite direction (like remittances or foreign aid)
secondary income
unilateral transfers
What is the difference between GDP and GNP
GDP is the value of all g&s produced within a country regardless of who produced it; GNP is the value of all g&s produced by domestic nationals regardless of where it was produced
What is the relationship between current account and financial account on the balance of payments?
All trade deficits on a country’s current account represent an equally sized financial account surplus; FA = CA
What could a FA surplus mean? (AKA a CA deficit)
- a country is borrowing from the rest of the world
- a country is selling assets to the rest of the world
- a combination of the two
What could a FA deficit mean? (AKA a CA surplus)
- a country is lending to the rest of the world
- a country is buying assets from the rest of the world
- a combination of the two
What is a twin deficit
twin deficits occur when a country has both a current account deficit and a government budget deficit at the same time
