Economic Growth [2.1.1] Flashcards
(33 cards)
What is GDP?
GDP is the market value of all final goods and services produced domestically in a time period.
What is Market value?
Value price paid by consumers.
What are final goods?
GDP does not count value of raw materials only finished goods.
What is the time period for GDP?
A year or on a quarterly basis (3 months)
What are the 3 ways to measure GDP?
Output measure: value of goods and services produced by sectors of the economy e.g manufacturing.
Expenditure measure: Value of goods and services purchased by households and the government investments by firms in machinery and building includes exports - imports
Income measure: Value of the income generated mostly in terms of profits and wages.
What is GDP used for?
Principle means for determining the health of the UK economy used by Bank of England for Monetary policy, key indicators for setting interest rates.
GDP is used for planning economic policy when an economy is contracting tax receipts fall gov adjusts to spend accordingly
What is the formula for GDP?
GDP (AD) = C + I + G + (X-M)
What do the letters stand for in GDP?
C - consumption of goods and services consumers buy
I - Investment by firms on capital and machinery
G - government spending on public goods and services
X -M Exports - imports money leaving the country vs coming in
What is Gross National Income?
Added what the country earns through investment overseas subtracts what foreigners earn in the home country and sent back home.
What is scarcity?
Scare resource of alternate uses limited and finite choices about how to use these resources.
What is Econometrics?
use of statistical methods to develop theories or test existing hypotheses in economics or finance.
What is the difference between micro and macro economics?
Micro - Behaviour of individual agents and markets
Macro - Study of the entire economy as a whole in a country
What is the difference between positive and normative economics
Positive - objective can be tested
Normative - Subjective based of value or judgment
What are the key objectives of the UK economic performance?
Low inflation/price stability
Growth of real GDP
Falling unemployment / Raising employment
Higher average standards of living
Improved balance of trade position
Fair distribution of income and wealth.
What is the circular flow of income?
Shows how money flows between the different components in an economy.
Spending > Production > income
What are the 4 parts of circular flow of income?
Households - Receive income will consume or save
Firms - meet the demands of consumers through output, pay wages , make investments
Government - Collect taxes from households and firms then spent
External sector - Buys imports from abroad and sell UK products abroad
Model for the circular flow of income?
What are Leakages in the economy?
Savings
Taxation
Imports
What are injections in the economy?
Investment
Govt spending
Exports
What is GDP per capita?
Used to estimate the living standards for people in a country
GDP / Total population
What is nominal GDP?
Figure given for GDP without taking inflation into account.
What is Real GDP?
Measures of a country’s GD[ adjusted for inflation.
What is PPP?
Purchasing power parity - exchange rate is the rate at which the currency pf one country would have to be converted into that of another country’s to buy the same amount of goods and services
How useful is GDP to measure living standards?
GDP has a positive correlation with life expectancy and happiness.
As GDP per capita increases so does human development
As average per capita increases so does income of the poor
It is good for comparing same countries at different time periods
