GDP, Unemployment and Inflation Flashcards
(24 cards)
What is GDP?
Gross Domestic Product. The market value of all final goods and services
produced in a country during a period of time.
Where is GDP used?
- measuring the Size of economies
▸ How poor/rich are individuals in a particular
country on average?
▸ Growth rate of economies
▸ Are we in a recession?
How does GDP measure production?
By using the value of production in dollar terms
What does GDP include?
▸ It includes both goods such as
▹ Food, clothing, mobile phones, cars, bread
▸ And services such as
▹ Haircuts, house cleaning, accounting
services
BUT DOES NOT include intermediate goods or services, second-hand goods
What is GDP?
Gross Domestic Product (GDP) is the total market value of all final goods and services produced within a country in a given period.
What are the three approaches to measuring GDP?
Production approach – value of output minus intermediate inputs
Expenditure approach – C + I + G + (X – M)
Income approach – total income earned (wages, rent, interest, profit)
What is the difference between nominal and real GDP?
Nominal GDP: measured in current prices (not adjusted for inflation)
Real GDP: adjusted for inflation using a base year’s prices
Why is real GDP preferred over nominal GDP?
Real GDP accounts for inflation, making it a more accurate measure of changes in output over time.
What is GDP per capita, and what does it indicate?
GDP per capita = Real GDP ÷ Population. It’s an indicator of average income or living standards in a country.
What are some limitations of GDP?
Doesn’t capture non-market activity (e.g. household work)
Ignores inequality and distribution
Doesn’t measure environmental degradation or well-being
Who is considered unemployed?
A person not working, actively seeking work in the past 4 weeks, and available to start.
What is the formula for the unemployment rate?
(Number of Unemployed ÷ Labour Force) × 100
What is the labour force participation rate?
(Labour Force ÷ Working-age Population) × 100
What is the employment-to-population ratio?
(Employed ÷ Working-age Population) × 100
Name and describe the four main types of unemployment.
Frictional – Between jobs or entering workforce
Structural – Skills mismatch or outdated industries
Cyclical – Due to economic downturns
Seasonal – Related to seasonal work (e.g. farming, tourism)
What is the natural rate of unemployment (u)?*
The unemployment rate when the economy is at full employment — includes only frictional and structural unemployment.
What are the economic costs of unemployment?
Lost output (GDP gap)
Reduced tax revenue
Higher welfare spending
Human costs: stress, loss of skills, lower morale
What is inflation?
A sustained increase in the general price level over time.
How is inflation measured in Australia?
Using the Consumer Price Index (CPI), which tracks the cost of a fixed basket of goods and services.
What is the inflation rate formula?
[(CPI this year – CPI last year) ÷ CPI last year] × 100
What are the main types of inflation?
Demand-pull – Excess demand raises prices
Cost-push – Rising input costs reduce supply and raise prices
Built-in – Wage-price spiral from inflation expectations
What is the difference between real and nominal wages?
Nominal wage: wage in current dollars
Real wage: adjusted for inflation → Real Wage = Nominal Wage ÷ (CPI / 100)
Who benefits and who loses from inflation?
Winners:
Borrowers (repay with less valuable dollars)
Asset holders (property/stocks often rise with inflation)
Losers:
Savers (real value of savings eroded)
Fixed-income earners
Lenders (repaid with less valuable money)
What is the RBA’s inflation target?
The Reserve Bank of Australia targets 2–3% CPI inflation over time.
