GDP and Inflation Flashcards
(47 cards)
What are the 4 main macroeconomic objectives?
Sustainable economic growth
Low and steady inflation
Low unemployment
Healthy current account balance
What are the 2 additional macroeconomic objectives?
Protection of the environment
Redistribution of income
What identity is used to calculate the national income of an economy?
Income ≡ Expenditure ≡ Output
Define ‘GDP (Gross Domestic Product)’.
The total value of goods and services produced in an economy in a year
Define ‘economic growth’.
The rise in an economy’s national income over a period of time (usually a year)
What are the 3 benefits of using GDP as a measure of growth?
Relatively simple measure
Allows for comparison between countries - widely adopted
Allows for comparison between years to assess growth rate
What are the 8 limitations of using GDP as a measure of growth?
Value of home-produced goods Inflation Black market Environmental damage/improvement Population Income inequality Cost of living Statistical errors
How is the black market a limitation of using GDP as a measure for economic growth?
It involves the unrecorded transaction of goods, leading to the GDP being underestimated
How is the value of home-produced goods a limitation of GDP as a measure of growth?
Goods that are produced at home and aren’t sold (eg. home-grown food, homemade clothes) aren’t recorded, leading to the GDP being underestimated
Define ‘real GDP’.
The total value of goods and services produced in an economy in a year adjusted for inflation
How does economic growth occur?
When there is an increase in the quality or quantity of the factors of production
Define ‘the economic cycle’.
The overall state of the economy as it goes through four stages in a cyclical pattern
What are the 5 stages of the economic cycle?
Growth Boom Downturn Recession Recovery
What are the 4 features of the ‘Growth/Recovery’ stage of the economic cycle?
GDP starts to rise
Business/consumer confidence increases
Unemployment falls due to increase in demand
Prices start to rise
What are the 4 features of the ‘Boom’ stage of the economic cycle?
Peak of the cycle
Economy is doing well
Jobs are created as demand rises
New firms enter the market
What are the 4 features of the ‘Downturn’ stage of the economic cycle?
Economy still growing but slower
Demand for G&S begins to fall
Unemployment starts to rise
Firms stop expanding due to falling profits
What are the 4 features of the ‘Recession’ stage of the economic cycle?
Bottom of the cycle
Economy isn’t doing well - GDP begins to fall
Unemployment rises sharply due to fall in demand
Bankruptcies are common
What are the 7 benefits of economic growth?
Increased tax revenue for government
Increased investment fuelled by higher profits
New jobs created
Higher real incomes
Increased funds for infrastructure
Greater consumer confidence
Higher standards of living
Define ‘standard of living’.
The degree of wealth and material comfort available to a person or community
What are the 6 disadvantages of economic growth?
Risk of demand-pull inflation
Risk of environmental damage
Rising inequality
Over-exploitation of scarce finite resources
Opportunity cost of increased capital investment
Social problems arising from consumer society
Define ‘aggregrate demand’.
The total demand for all the goods and services in an economy at a given price level
What is the equation for aggregate demand?
AD = C + I + G + (X - M)
Aggregate Demand = Consumption + Investment + Government Spending + (Exports - Imports)
What 3 factors does the benefit of economic growth depend on?
How much growth is occurring
Role of the government
State of the economy
Define ‘inflation’.
The general and persistent rise in the prices of goods and services over a period of time
