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macroeconomics > chapter 5 > Flashcards

chapter 5 Flashcards

1
Q

what is a key measure for national income and a societies economic well being?

A

a countries GDP

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2
Q

is GDP a very comparable measure to other countries GDP?

A

yes

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3
Q

for an economy as a whole income must equal what?

A

expenditure

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4
Q

what are the 2 things that the GDP measures in the economy?

A

total income of everyone in the country

the expenditures of the countries output of good and services

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5
Q

every dollar that is spent by a buyer is a what?

A

every dollar spend by a buyer is a dollar of income to a seller

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6
Q

what are the 2 sides of the economy that the GDP captures?

A

buyer and seller

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7
Q

what does the measure of GDP capture?

A

the flow of money in the form of expenditures and income of households and firms

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8
Q

what is the definition of gross domestic product ?

A

the final value of goods and services produced within a country in a given period of time

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9
Q

what is gross national product?

A

the final value of all goods and services produced by domestic producers of a country in a given period of time

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10
Q

what does GNP stand for?

A

gross national product

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11
Q

what is net factor payment?

A

foreign revenue - foreign expenses

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12
Q

what are the 2 factors that make up gross national product?

A

gross domestic product + net factor payment

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13
Q

what does “final value of all goods and services” mean in the definition of GDP?

A

GDP adds up many different products into a single product of measure of value based on the price of the goods and services

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14
Q

what is an example of GDP adds up the “final value of all goods an services”?

A

if the price of an apple is twice the price of an orange, it will contribute twice as much to the GDP

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15
Q

what does “of all” mean in the definition of GDP?

A

all items produced in the economy and sold in legal markets are counted in the GDP

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16
Q

can some products be excluded from the GDP?

A

yes, some products can be excluded due to complexities of measuring them

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17
Q

what are 4 complexities that could exclude a good from being counted in the GDP?

A

items sold in illegal markets
anything produced and consumed by yourself
the property value of a house
people marrying

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18
Q

what does “final” mean in the definition of GDP?

A

GDP only includes the value of the final good and not the price of the intermediate good (materials being used), under the assumption that it is embedded in the final price

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19
Q

what is the exception when an intermediate good would be counted in the GDP?

A

if that intermediate good remains in inventory, it would be treated as a “final” product until its actual final use

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20
Q

what does “produced” mean in the definition of GDP?

A

GDP only includes items currently being produced and sold

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21
Q

what is an example of GDP only including items being currently produced and sold?

A

if ford produces and sells a new car it would be included in the GDP, the buyer of that car sells that used car it would not be counted in the GDP

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22
Q

what does “within a country” mean in the definition of GDP?

A

GDP measures the value of production within the geographic confines of the production country

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23
Q

what does “in a given period of time” mean in the definition of the GDP?

A

GDP is typically measured annually or quarterly to asses the countries flow of income and expenditure

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24
Q

how does the government modify the data of the GDP?

A

by “seasonally adjusting” the data

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25
Q

why does the government seasonally adjust the GDP data?

A

to look beyond the greater production holiday months and assess the health of the economy

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26
Q

what are the 4 components of the GDP?

A

consumption (C)
investment (I)
government spending (G)
net exports (NX)

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27
Q

what is the consumption (C) component of GDP?

A

spending by households (HH) on goods and services

28
Q

what goods are included in the consumption (C) components of GDP?

A

durable goods (cars and houses etc.)
non-durable goods (food and clothing etc.)

29
Q

what is the investment (I) component of GDP?

A

purchased goods that will be used in the future to produce more goods and services

30
Q

what is included in the investment (I) component of the GDP?

A

primarily refers to purchase of capital equipment, inventory and structures

31
Q

what are the 3 subcategories that investments are broken down to in the GDP?

A

housing
business investments
inventories
(or a mix of all 3)

32
Q

what is the government (G) comment of GDP?

A

spending on goods and services by all levels off government

33
Q

what does government spending include?

A

government salaries and spending on public works

34
Q

what does government spending not include?

A

transfer payments (Canadian pension plans and welfare)

35
Q

why do transfer payments not show up in government spending?

A

because it is considered as a moving money around the economy from the wealthy to people who need it, it is not consiterd spending

36
Q

what is net-exports (NX) component of GDP?

A

value of a nations exports minus the value of its imports

37
Q

if someone buys an imported good how will that impact the GDP?

A

GDP= C(increase)+ I + G + NX (decrease)
this will lead to no change in the GDP

38
Q

what does M stand for?

A

imports

39
Q

what does X stand for?

A

exports

40
Q

If a foreign consumer purchases car parts from Canada how will that impact the GDP?

A

GDP=C+ I (increase or same)+G+NX(increase)
this will lead to an increase in the GDP

41
Q

what does GDP measure?

A

the total spending on goods and services in all markets of the economy

42
Q

if total spending increases 1 of 2 things must be true, what are those 2 things?

A

economy is producing larger quantities of goods and services

goods and services are being sold at a higher price

43
Q

what are the 2 effects we want to separate when analyzing change in the GDP?

A

economy is producing larger quantities of goods and services

goods and services are being sold at a higher price

44
Q

what is nominal GDP?

A

the productions of goods and services valued at current prices

45
Q

what is the formula to measure nominal GDP?

A

current prices X current quantity

46
Q

what is real GDP?

A

the production of goods and services valued at constant prices

47
Q

how is the constant price determined?

A

it is determined by selecting a base year to use as the price for calculating the real GDP

48
Q

what is the formula to measure real GDP?

A

constant prices X current quantity

49
Q

what does the GDP deflator measure?

A

the price level calculated as a ratio of nominal GDP to real GDP

50
Q

what is the formula for the GDP deflator?

A

nominal GDP divided real GDP X 100

51
Q

why is the current quantity used when measuring GDP and GDP deflator?

A

so it measures the change in prices and not the change in quantity

52
Q

what is inflation?

A

percentage change in price levels from one period to the next

53
Q

what is the formula for GDP inflator?

A

(GDP year 2 deflator - GDP year 1 deflator) divided by GDP year 1 deflator

54
Q

what is the GDP inflator?

A

measures inflation for the whole economy

55
Q

what are the 2 ways to calculate inflation?

A

GDP deflator
CPI

56
Q

what does the GDP deflator reflect?

A

the change in price of all the goods and services produced within the economy

57
Q

what does a basket of goods represent?

A

the composition of goods and services in the economy

58
Q

what does the CPI reflect?

A

the change in prices for only goods and services that are typically purchased by a household

59
Q

what does CPI stand for?

A

consumer price index

60
Q

what is a recession?

A

2 or more consecutive quarters of falling real GDP

61
Q

what is GDP commonly used as a proxy measurement for?

A

countries economic prosperity and standard of living

62
Q

regarding GDP measuring standard of living, what are the 3 things the GDP does not capture?

A

leisure time
quality of environment
income distribution within the country

63
Q

why can the GDP be useful at measuring quality of life?

A

because it is correlated with measures that look at quality of life

64
Q

what measures are correlated with high GDP?

A

high life expectancy
high HDI

65
Q

what is HDI?

A

human development index

66
Q

what are the 4 things the human development index (HDI) measure?

A

years of education
income inequality
gender inequality
employment levels

67
Q

when someone buys a house what area is that considered in the GDP?

A

buying a house is considered investment not consumption

macroeconomics (13 decks)

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