THE ECONOMIC ENVIRONMENT - GDP

Question 1

What does GDP stand for

Answer 1

Gross domestic product

Question 2

What is grodd domestic product (GDP)

Answer 2

The total value of all goods and services produced in an economy in a period of time (which is usually considered to be one year).

Question 3

What is the formula for working out Nominal GDP

Answer 3

Nominal GDP formula = total output x price - This gives you the total value of everything sold

Question 4

What is real GDP

Answer 4

Real GDP is slightly different - Because prices change overtime, prices tend to go up, it can look like an economy has grown - For example: It produces 10 goods, sells them 10 goods for £10 in total, that one year the economy is worth £10. Now say the following year you still create 10 products, but prices have gone up 10%, which makes the total value of the economy £11 this year. But there isn’t any change in output. Real GDP is a way of comparing total output with an adjustment made for changing prices

Question 5

What happens in recovery and boom

Answer 5

Increaing output (i.e. economic growth is increasing, more money flowing around circular flow and income)

Rising employment and wages

Rising prices (inflation)

Balance of payments deficit

Question 6

What happens in a slowdown and recession

Answer 6

Falling output (i.e. economic growth is declining, less money flowing around circular flow of income)

Falling employment and wages

Prices stable (falling?)

Balance of payments surplus

Question 7

What are componenents of GDP

Answer 7

Consumption
Investment
Government Spening
Net Exports

Question 8

What is consumption

Answer 8

Increases in income (wages/ salaries)

Increases in wealth (house prices)

Increases in consumer confidence

Exoansionary monetary/ fiscal policy

Question 9

What is investment

Answer 9

Increases in profitablity

Increases in business confidence

Fall in length of experienced rates of return on an investment (how lonf it will take to pay back)

Expansioary momentom/ fiscal policy

Question 10

Government spending

Answer 10

Changes in government policy

Increase in size of deficit

Change of political party

Question 11

Net exports

Answer 11

Fall in relative value of sterling

Increase in overseas income

Question 12

What are the opportunities and threats of GDP

Answer 12

Impact on business confidence
Impact on willingness to invest - returns on investment, cost of credit
Impact on consumer confidence - determines sales/ profits
Impact on competitiveness of markets
Impact on cost of production
Impact on recruitment decisions
Impact on interest rates