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macro > test 2 > Flashcards

test 2 Flashcards

1
Q

what is the GDP

A

measures a country’s aggregate economic activity, total output of goods and services (total value of final goods and services produced within a country during a particular year)

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2
Q

what is a final good

A

good or product that is at its last stage of production and ready to be consumed (car vs steel which is a intermediate good)

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3
Q

6 limitations to the GDP

A
  1. exclusion of non-market transactions
  2. does not account for the inequality of income and wealth
  3. rises with each incident of social breakdown (crime, divorce)
  4. rises with each environmental disaster, pollution, repair expenditure
  5. does not account for the depletion of natural resources
  6. increases with war expenditure and post-war rebuilding activities
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4
Q

what is the human development index (HDI)

A

ranks countries on a scale from 0-1

  • low: (0-.499)
  • medium: (.5-.699)
  • high: (.7-.799)
  • very high: (.8-1)
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5
Q

3 developmental goals that countries are ranked by for the HDI

A
  1. standard of living measured by real per capital income
  2. longevity measured by life expectancy at birth
  3. knowledge or education as measured by the weighted average of adult literacy and mean years of schooling
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6
Q

what is not included for measuring the GDP

A
  • financial transactions (securities, gov transactions, private transfer payments, illegal or legal underground)
  • transfer of second hand goods
  • household production
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7
Q

what are the two ways to measure the GDP

A

expenditure approach and income approach

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8
Q

what is the expenditure approach formula

A

GDP=C+I+G+NX

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9
Q

what is personal consumption (C)

A

goods and services bought by households for immediate use (durable goods, nondurable goods, services)

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10
Q

what is gross domestic private investment (I)

A

goods bought for future use

  • business fixed: investment by private firms in physical assets (machinery)
  • new residential construction
  • inventory investment by firms: when goods produced are not sold because of lower demand, they go to inventory stocks
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11
Q

what is government purchases (G)

A

goods and services bought by the government

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12
Q

what is net exports (NX)

A

value of goods and services exported to other countries (X-IM)

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13
Q

3 cases of NX/trade balance

A
  1. positive: X-IM>0, trade surplus
  2. negative: X-IM<0, trade deficit
  3. zero: X-IM=0, trade balance
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14
Q

what is the income approach formula

A

GDP= NDI + indirect taxes - subsidies + depreciation

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15
Q

what is part of the net domestic income at factor price (NDI)

A
  • wages/salaries: labour or employment income earned
  • corporate profit: corporates and gov. enterprises before taxes
  • farm and unincorporated business income: wages, rent, profit, interest
  • interest and investment income: earned on bank deposits, corporate bond holdings, financial assets
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16
Q

what are indirect taxes

A

paid by consumers on their purchases (goods and services tax, GST)

17
Q

what are subsidies

A

financial aid given to private corporations to reduce production cost

18
Q

what is depreciation/capital consumption allowance

A

money firms spend on repairing physical capital

19
Q

different formulas for income approach

A
  • net domestic product at market price (NDP)= NDI+indirect taxes-subsidies
  • net indirect taxes= indirect taxes-subsidies
  • GDP= NDP+depreciation
20
Q

GDP vs GNP

A

GDP: income earned within Canada by Canadians
GNP: income earned within Canada by Canadians but ALSO earned in and by foreigners

21
Q

GNP formula

A

GNP= GDP + net income from abroad

net income from abroad: income earned abroad by Canadians - income earned in Canada by foreigners

22
Q

3 cases of GNP

A
  1. if net income abroad is zero: GNP=GDP
  2. if net income abroad is positive: GNP>GDP
  3. if net income abroad is negative: GNP
23
Q

is GNP or GDP more important

A

GDP if goal is to increase economic growth

GNP if goal is to measure how well they are living

24
Q

what is the nominal GDP and formula

A

value of current output measured in terms of current prices

NGDPt= Σ Pt x Qt

25
Q

what is the real GDP and formula

A

value of current output measured in terms of some base-year constant price
RGDPt= Σ Pb x Qt

26
Q

what is the business cycle

A

used to measure the ups and downs in the level of the RGDP and other related macroeconomic variables

27
Q

explain the business cycle graph

A 
x axis: time
y axis: RGDP
potential GDP is a straight line
RGDP is curvy
inflationary gap: above potential GDP
recessionary gap: under potential GDP
peak: the highest in inflationary gap
trough: the lowest in the recessionary gap
recession: when it goes down
recovery: when it goes back up
zero: when potential=real
28
Q

what is the potential GDP (Y*)

A

what the economy could produce if all resources were employed at their normal levels of utilization (full-employment output)

29
Q

what is the actual GDP (Y)

A

what the economy actually produces

30
Q

what is the output gap

A

difference between actual and potential (Y-Y*)

31
Q

3 types of output gaps

A
  1. when YY* (Y-Y*=pos), the gap is inflationary (a measure of the market value of all goods and services produced above potential)
  2. when Y=Y* (Y-Y*=0), the gap is a zero gap
32
Q

employment, unemployment, labour force, working age population

A
  • employment: number of adult workers (15+) who have a job
  • unemployment: number of individuals who are not employed but are searching for a job
  • labour force: number of unemployed and employed
  • working age population: number of people (15+) who are legally entitled to work in Canada
33
Q

unemployment consequences

A

causes financial insecurities (economic, social and psychological effects) and national waste (productive resources)

34
Q

labour force formula

A

L=E+U

35
Q

unemployment rate formula

A

u=U/L X 100

36
Q

employment rate formula

A

e=E/W x 100

37
Q

labour force participation rate

A

lf= L/W x 100

38
Q

3 types of unemployment

A
  1. frictional: temporarily between jobs or looking for a job (short-term)
  2. structural: mismatch between available jobs and available skilled workers (production technology, seasonal variation/unemployment
  3. cyclical: short-term cyclical fluctuations in the economy (unemployment goes up every summer and down every fall) business cycle ups and downs

macro (3 decks)

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