Macroeconomics Flashcards
(89 cards)
GDP is
market values (not quantities) of final goods and services in the economy
3 Methods of measuring GDP
- expenditure method
- production method
- income method
Net Domestic Product (NDP) is
A measure of GDP less depreciation on capital equipment
Gross net expenditure is
Expenditure on output in NZ (GNE = C + I + G)
Gross National Income (GNI) is
NZs GDP plus income generated overseas by NZ residents and firms, minus income generated here by non NZers
GNI = Net international investment income + GDP
Components of GDP
C + I + G + NX
Real GDP, and drawback of using it?
market value of final goods and services in the economy measured in base year prices (adjusted for inflation). Drawback is that prices could change relative to each other.
Nominal GDP
market value of final goods and services in the economy measured in current prices
Inputs of Productivity
inputs / factors of production directly determine productivity. COuld be; physical capital, human capital. natural resources, technological knowledge. Productivity depends on some combination of these factors
Production function shows
If the economy has a low level of capital, then adding an extra unit of capital is going to increase output quite largely, but if the economy has a large amount of capital then not a large change in output will occur.
Commodity Money
Goods that can be used as money but also have their own value eg gold.
4 functions of money
- medium of exchange
- unit of account
- store of value
- standard of deffered payment
Fiat money
paper money authorised by a bank or government and does not have to be exchanged for gold or other commodities
M1
narrowest definition of money supply - includes paper money and coins that are in circulation - not held by the bank or government, plus value of demand deposits by banks.
Demand deposits
Also called current deposits, transferable by cheque, debit cards and at eftpos terminals, through electronic transfer – available on demand and repayable in notes and coins
M3
M1, plus all other deposits with domestic and foreign banks operating in New Zealand
Broad Money
M3 plus deposits into non banking deposit taking institutions such as finance companies, and cash management trusts.
Reserve ratio
Ratio of deposits to reserves.
Simple deposit multiplier = If the reserve ratio were 10%, 1/0.1 = 10. Thus $9 has been created.
Financial systems provide 3 services
- risk sharing
- liquidity
- Information
OCR
form of monetary policy utilised by RBA to control interest rate, which influences inflation
Price Level
Measure of average prices of goods and services in the economy
Inflation
Sustained, continuous increase in the price level in the economy.
Consumer Price Index
Average measure of prices in the economy of general household goods.
Substitution bias (CPI)
Discrepancy not considered by the CPI which is when consumers will substitute towards goods that are relatively less expensive. Therefore index overstates increase in price of living by not considering consumer substitution