Chapter 31 Flashcards
What is the most commonly used measure of national income?
The most commonly used measure of national income is Gross Domestic Product GDP.
In what four ways can national income be measure?
1) Real terms
2) Nominal terms
3) As a total
4) Per capita
How can national income statistics be used?
They are often used as a proxy measure for the standard of living and to compare living standards within a country over time and between countries.
Give four reasons why national income statistics can be inaccurate.
1) Statistical errors
2) The existence of the hidden economy
3) The existence of non-traded sectors
4) Difficulties with valuing public sector output.
What is GNP?
Gross national product is the market value of goods and services produced over a period of time through the labour or property supplied by the citizens of a country, both domestically and overseas.
What is GNI?
Gross national income is the value of goods and services produced by a country over a period of time (GDP) plus net overseas interest payments and dividends (factor incomes)
Why do problems occur when comparing national income over time as a measure of living standards?
Problems occur when comparing national income over time as a measure of living standards because of factors such as inflation, changes in population, the quality of goods and services and changes in income distribution.
What has to be established when comparing national incomes between countries?
An exchange rate has to be established that accurately reflects different purchasing power parities.
What sort of correlation is there between national income and national happiness?
There is only a partial correlation between levels of national income and levels of national happiness.
What are purchasing power parities?
A purchasing power parity is the exchange rate used to compare the cost of living in each country, when national income statistics are to be used to compare living standards between countries.
Explain the Easterlin paradox.
The Easterlin paradox was the idea that increase in GDP does not lead to increases in happiness.
What is a demand-side shock?
Give three examples.
Demand-side shocks are shocks which affect aggregate demand.
1) Housing market bubble may burst
2) The stock market may crash, which would reduce the wealth of individuals.
3) The central bank may sharply raise interest rates perhaps to combat rising inflation.
What is a supply-side shock?
Give two examples.
A supply-side shock is a shock which affects aggregate supply.
1) A large rise in world commodity prices could raise the price level in the UK and lead to a rise in import values, this will reduce aggregate supply leading to lower output.
2) An outbreak of trade union militancy, could lead to wage increases, which would raise the price level and reduce aggregate supply.
