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Macroeconomics SEM 2 > Measuring Econ. Activity > Flashcards

Measuring Econ. Activity Flashcards

1
Q

Define GDP

A
  • Measures Total Income of the Economy

- Measures Total Expenditure on Economy’s Output of G+S

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2
Q

Why must Income = Expenditure for an Economy as a whole?

A

Every Transaction has a Buyer + Seller

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3
Q

What do Market Prices reflect?

A

Reflect the Value of Goods

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4
Q

What does the GDP count in the measure?

A

Market Value of All Final G+S produced in a country in a given time period
All G+S Sold LEGALLY in Markets

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5
Q

What type of G+S are Excluded from GDP Measure?

A

Illicitly Sold G+S

G+S produced at Home

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6
Q

What is the National Account Identity?

A

Y = C + I + G + NX

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7
Q

Define Consumption

A

Spending by Households on G+S

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8
Q

What is NOT Included in Consumption?

A

New Housing

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9
Q

Define Investment

A

Spending on Capital Equipment, Inventories + Structures

–> Inventory Accumulation

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10
Q

What is New Housing accounted under?

A

Investment

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11
Q

Define Gov. Spending

A

Gov. ConsumptionExpenditure + Gross Investment (Public)

Spending on G+S

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12
Q

Who accounts for Gov. Spending?

A

Local + National Governments

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13
Q

What does Gov. Spending NOT Include?

A

Does NOT Include Transfer Payments

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14
Q

What are Net Exports?

A

Exports - Imports

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15
Q

Define Exports

A

Spending on Domestically Produced G+S by Foreigners

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16
Q

Define Imports

A

Spending on Foreign G+S by Domestic Residents

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17
Q

Define GNP

A

Total Income earned by Citizens of a Nation

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18
Q

Who is include in GNP?

A

Income from Citizens Abroad

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19
Q

Who is Excluded from GNP?

A

Income form Foreigners

20
Q

How is GNP Calculated?

A

GNP = GDP + Net Factor Income from Abroad

21
Q

What is NNP?

A

Net National Product

22
Q

How is NNP Calculated?

A

NNP = GNP - Depreciation

23
Q

Why is it Important to distinguish between Real + Nominal GDP?

A

A Rise in Total Spending may be due to Increased Inflation

–> Output has NOT actually Increased- just Prices

24
Q

Define Nominal GDP

A

Production of G+S valued at Current Prices of a given Base Year

25
Define Real GDP
Production of G+S valued at Constant Prices of a given Base Year
26
How is the GDP Deflator Calculated?
GDP Deflator = [Nominal GDP / Real GDP] x 100
27
what are the main Limitations to the GDP Measure?
1. Does NOT Account for Income Distribution- INEQUALITY 2. Misses Value of Activity Outside Markets- Illicit + Home produced G+S 3. Ignores Environmental Impact of Output
28
Define Inflation
Rise in the Economy's Overall Price Level
29
Define Inflation Rate
% Change in Price Level from One Period to the Next
30
What are the 2 main measures of Inflation?
CPI | PPI
31
What does CPI Measure?
Overall Level of Prices
32
How is CPI Calculated?
1. Fix a Basket of Goods 2. Record Prices at each Time Interval 3. Find Cost of Basket + Measure Changes 4. Choose a Base Year 5. Compute Inflation Rate
33
What is PPI?
Producer Price Index
34
What does PPI Measure?
Cost of Basket of G+S bought by Firms
35
What are the 4 main problems with CPI?
1. Substitution Bias 2. Intro of New Goods 3. Unmeasured Quality Change 4. Individual Spending Patterns may NOT be Typical
36
Why is Substitution Bias a Problem for CPI?
Prices of G+S do NOT change proportionately | --> Consumers may Substitute to relatively less Expensive Goods that are NOT in the Fixed Basket
37
Define GDP Deflator
Ratio of Nominal GDP : Real GDP
38
What does GDP Deflator reflect?
Reflects Prices of ALL G+S produced Domestically
39
What does GDP Deflator Compare?
Compares Prices of Currently Produced G+S to Price of same G+S in Base Year
40
What do CPI/PPI reflect?
Reflects Prices of G+S bought by Consumers + Firms
41
What does CPI/PPI Compare?
Compares Price of Fixed Basket of G+S to Price of Basket in Base Year
42
What is the main issue with CPI/PPI?
Basket NOT Updated Automatically over time
43
What is RPI + How is it Calculated?
Retail Price Index | RPI = CPI + Council Tax + Mortgage Interest Payments
44
What's the Main Difference between GDP Deflator + CPI?
CPI reflects Prices of Foreign Goods as well - e.g. Increased Oil Prices --> Greater Increase in CPI than in Deflator - -> Because Oil makes up larger proportion of Consumer Spending then of GDP
45
How do you Account for Inflation?
Value of Today's £ = Value in Year T £ x [Price Level Today / Price Level in Year T]
46
What does Indexation reflect?
Reflects Real Purchasing Power at that Moment in Time

Macroeconomics SEM 2 (13 decks)

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