measuring the economy Flashcards
(56 cards)
What does GDP stand for and what does it measure?
Gross Domestic Product; it measures the total market value of all final goods and services produced in an economy over a given period.
How do we compare living standards between countries?
By using GDP per capita, which is total GDP divided by the population.
Why are intermediate goods excluded from GDP?
To avoid double counting, since their value is already included in the final goods.
What is the easiest way to compare the value of different goods and services?
By using their market prices.
What is disposable income?
The income (wages, profits, rents, interest, and transfers received) minus the transfers made to others — it represents the maximum amount someone can spend without going into debt.
What important aspects of wellbeing are not included in disposable income?
Social and physical environment, free time, publicly provided goods (like healthcare), and household production (like childcare).
What is the difference between GDP and disposable income in terms of government goods?
GDP includes the value of government-provided goods and services; disposable income does not.
Why can average income fail to reflect a population’s wellbeing?
Because income distribution matters — people compare themselves to others, and relative income affects perceived wellbeing.
What is one way GDP can be better than disposable income at measuring living standards?
GDP includes public services that contribute to wellbeing, which disposable income leaves out.
What are some limitations of using GDP per capita as a measure of wellbeing?
It does not capture inequality, unpaid work, environmental quality, or non-market services.
What are the core features of capitalism that contributed to economic growth?
Private property, markets, and firms.
How did advances in technology and specialisation affect productivity?
They significantly increased productivity, fueling economic growth.
What are two growing concerns linked to the capitalist revolution?
Environmental degradation and global inequality.
What are the three methods for estimating GDP?
Spending approach, production approach, and income approach.
What does the spending approach to GDP measure?
The total spending by households, firms, the government, and foreign buyers on domestic products.
What does the production approach to GDP measure?
The total value added by each industry, subtracting the value of intermediate inputs to avoid double counting.
What does the income approach to GDP measure?
The total income received: wages, profits, self-employment income, and taxes.
In an economy that produces only shirts, what is the GDP if a shirt sells for $100 to a consumer?
$100 — the value of the final sale to the consumer.
How do imports and exports affect GDP?
Exports are included (domestically produced), imports are excluded (produced abroad).
What does the circular flow diagram show about the government’s role?
Households pay taxes → Government uses taxes to produce public goods → Households consume these goods.
What’s the difference between durable and non-durable goods?
Durable goods last 3+ years (e.g. cars), non-durable goods are used up quickly (e.g. food).
Are government transfers (like benefits and pensions) included in “G”?
No — they’re counted in consumption when spent to avoid double-counting.
How are net exports (X – M) calculated, and what do they represent?
Exports minus imports; represents the trade balance.
