Chapter 7 - Introduction to Macroeconomics & National Income Accounting Flashcards
(31 cards)
What are the macroeconomic indicators?
- Gross domestic product (GDP) or National Income
- Unemployment rate
- General price level (GPL)
What are the macroeconomic aims?
- Economic growth (incl. sustainable and inclusive growth)
- Full employment or low rate of unemployment
- Price stability
Define National Income
National Income measures the monetary value of the flow of output of final goods and services produced in an economy over a period of time.
What are the 3 approaches to measuring national income?
- Production/Output approach
- Income approach
- Expenditure approach
What is the output approach in measuring national income?
The production/output approach measures the money value of final goods and services produced by the various industries in the economy.
What is the income approach in measuring national income?
The income approach measures the total income earned by households who provided resources to firms (consisting of wages, rent, interest, profits).
What is the expenditure approach in measuring national income?
The expenditure approach measures the total expenditure on goods and services produced by the country (C + I + G + X - M).
What is gross domestic product (GDP)?
Gross domestic product measures the total money value of all final goods and services produced within the geographical boundary of a country within a period of time, regardless of whether they are produced by nationals or foreigners.
What is gross national product (GNP)?
Gross national product measures the total money value of all final goods and services produced by the residents of a country during a given time period, usually a year.
What is factor income from abroad?
Factor income from abroad is the incomes accrued to the residents of the country from the ownership of resources used in the production of goods and services abroad.
What is factor income paid abroad?
Factor income paid abroad is the income generated by foreign factors accrued to residents of other countries.
What is the relationship between GDP and GNP?
GNP = GDP + Net factor income from abroad
(Net factor income from abroad is the difference between factor income from abroad and that paid abroad)
What are the difficulties in measurement of national income?
- Non-reported transactions: info neither openly available nor reported to relevant authorities (think black market and people who want to escape income tax)
- Non-marketed transactions: does not involve monetary exchange; nearly impossible to measure value of G&S
- Availability and reliability of data: data only an estimate of sample/population
What is nominal GDP?
Money value of all goods and services produced within the territory at current market prices (changes can be due to change in output/market price)
What is real GDP?
Money value of all final goods and services produced within the territory adjusted for price changes
How to calculate real GDP?
Real GDP = Nominal GDP x (100 / current year Consumer Price Index)
How to find real GDP growth rates?
Real GDP growth rate = Nominal GDP growth rate - inflation rate
Define material standard of living (SOL)
Material SOL measures the quantity and quality of goods and services accruing to (accumulated by) each person in the country
Define non-material SOL
Non-material SOL refers to the qualitative aspect of living. Factors that affects a person’s quality of life includes the air quality, the amount of leisure time, the exposure to crime, life expectancy, literacy rates, mental health, stress levels etc. These factors intangible but affects quality of life.
What are the limitations in measuring material SOL OVER TIME?
a) Inflation or deflation rates (hence use real GDP)
b) Population size (hence use real GDP per capita)
c) Distribution of income (hence use gini coefficient)
d) Types of goods being produced (e.g. households do not directly benefit from production of blast furnace)
e) Qualitative changes in consumer goods (real GDPpc data does not account for quality changes since it looks at output only)
f) Changes in statistical coverage and reliability of data (better system of data collection; accounting definitions and conventions change)
g) Increase monetization of an economy (more goods included in calculation of GDP without much change in material SOL)
Unless otherwise stated, first two limitations are already assumed solved using real GDPpc
How to calculate real GDP per capita?
Real GDPpc = Real GDP / Population size
How to calculate percentage change in real GDP per capita?
% change in real GDPpc = % change real GDP - % change in population
What are the limitations in measuring non-material SOL OVER TIME?
a) Amount of leisure time (consider average working hours per week; rise in GDPpc may be due to rise in working hours and fall in leisure time)
b) Presence of negative externalities (e.g. higher real GDPpc may result in more pollution -> consider pollution levels)
What are the limitations in measuring material SOL OVER SPACE?
a) Inflation or deflation rates (hence consider real GDP)
b) Population size (hence consider real GDP per capita)
C) Distribution of income (hence consider gini coefficient)
d) Qualitative changes in consumer goods (quality of goods and services likely to differ between countries)
e) Differences in statistical coverage and reliability of data (different accounting definitions and conventions)
f) Conversion to a common currency (exchange rate influenced by trade and speculations, does not consider relative prices of goods in both countries; hence use purchasing power parity instead)
