Week 10: macro indicators

Question 1

Welfare Society

Answer 1

• the general health of a society’s economy
• transfer payments and personal income taxes

Question 2

Transfer payments

Answer 2

• rich people’s income transferred to poor people to stimulate economy
• redistributing money creates jobs
• based on the principle of means testing rather than universality

Question 3

Means testing

Answer 3

do they have the means to provide for themselves

Question 4

Universality

Answer 4

everyone should have the same min income enough to buy basic needs

Question 5

Productive assets

Answer 5

making stuff that gives people work (unlike stocks)

Question 6

Principles of taxation

Answer 6

• benefits received
• ability to pay

Question 7

Benefits received

Answer 7

ex. gasoline taxes for roadwork, walmart for using 18 wheelers

Question 8

Ability to pay

Answer 8

ex. personal income tax

Question 9

Progressive taxes

Answer 9

increase as a proportion of income as income rises

ex. 10% taken from everyone’s income

Question 10

Proportional taxes

Answer 10

stay constant as a proportion of income as income rises

Question 11

Regressive taxes

Answer 11

decrease as a proportion of income as income rises

ex. poor people paying more taxes

Question 12

Personal income taxes

Answer 12

• progressive
• the proportion of income paid in tax rising significantly with a household’s income level

Question 13

Gross Domestic Product (GDP)

Answer 13

• the total dollar value of all final goods and services produced in an economy during a particular period
• economic activities that happen domestically (in boarders)

Question 14

How GDP is calculated

Answer 14

• the income approach
• the expenditure approach

Question 15

GDP identity

Answer 15

states that GDP expressed as total income is identical to GDP expressed as total spending

Question 16

Income approach

Answer 16

• wages and salaries
• corporate profits
• interest income
• proprietors’ incomes and rents

Question 17

Corporate profits

Answer 17

retained earnings, dividends, corporate income tax

Question 18

Interest income

Answer 18

interest paid on business loans and bonds

Question 19

GDP calculated with the expenditure approach

Answer 19

• indirect taxes
• depreciation
• statistical discrepancy

Question 20

The Expenditure Approach

Answer 20

• is the sum of purchases in product markets
• is based on value added at each production stage to avoid double counting
• excludes financial exchanges and second-hand purchases

Question 21

GDP formula

Answer 21

C + I + G + (X – M)

Question 22

4 Components of the Expenditure Approach

Answer 22

• Personal consumption (C)
• Gross investment (I)
• Government purchases (G)
• Net exports (X – M)

Question 23

Personal consumption (C)

Answer 23

consists of household purchases of services and nondurable and durable goods

Question 24

Gross investment (I)

Answer 24

represents business and government purchases of real capital (including added inventories) and is financed through retained earnings and personal saving

Question 25

Government purchases (G)

Answer 25

exclude transfer payments and are financed through taxes and borrowing

Question 26

Net exports (X – M)

Answer 26

equals exports (foreign purchases of Canadian products) minus imports (Canadian purchases of foreign products)

Question 27

Capital stock

Answer 27

the total value of productive assets that provide a flow of revenue *Calculation example from slides*

Question 28

Net investment

Answer 28

* the annual change in an economy’s capital stock * = gross investment - depreciation

Question 29

Positive Net investment

Answer 29

= growing economy with an increasing capital stock

Question 30

Negative Net investment

Answer 30

= a declining economy with a decreasing capital stock

Question 31

Sources of funds for investment

Answer 31

* businesses’ retained earnings (profit) * personal saving (S) * these are inflows into financial markets, while investment is an outflow

Question 32

Financial inflows to government

Answer 32

* household taxes minus transfer payments * business taxes minus subsidies * government borrowing

Question 33

Government purchases

Answer 33

a financial outflow from government

Question 34

Connections with the Rest of the World

Answer 34

exporting more than importing grows economy and revenue flow

Question 35

Per capita GDP

Answer 35

* GDP per person * = GDP divided by population ex. economy $1b, population 1b GDP = $1

Question 36

Per capita real GDP

Answer 36

* inflation adjusted GDP per person * expressed in constant dollars from a given year * used to compare living standards in a given country over time

Question 37

Limitations of GDP

Answer 37

does NOT: * include nonmarket activities * fully capture improvements in product quality * indicate the composition of output * indicate the distribution of income * indicate how much leisure is enjoyed by a country’s citizens * distinguish between activities that are and are not harmful to the environment

Question 38

Gross National Product (GNP)

Answer 38

* the total income acquired by Canadians both within Canada and elsewhere * = GDP - net investment income to the rest of the world ex. doesn't matter where just has to be a Canadian frim