1.1 The Circular Flow Of Income Flashcards
What are injections?
Spending which does not come from households: investment (I), government spending (G), exports (X)
What are leakages?
Spending by households which does not flow back to firms: saving (S), taxation (T), imports (M)
What is macroeconomic equilibrium?
Injections = leakages: I+G+X = S+T+M
What is Gross Domestic Product (GDP)?
The total value of final goods and services produced within an economy over a period of time
What is Gross Value Added (GVA)?
GDP - indirect taxes + subsidies
What is Gross National Income (GNI)?
GDP plus net factor incomes from abroad
What is Net National Income?
GNI - depreciation
What is the expenditure method for calculating GDP?
C + I + G + X - M
What is the income method for calculating GDP?
Income from employment and self employment + rental income + gross trading profits of private and public companies + other incomes
What is the output method for calculating GDP?
Primary + secondary + tertiary sector output - stock appreciation
What are nominal values?
Values at current prices
What are real values?
Values adjusted for inflation
What is the equation for the GDP deflator?
Nominal GDP/Real GDP x 100
What is the equation for Real GDP?
Nominal GDP/GDP Deflator x 100
What can make national income statistics inaccurate?
Statistical inaccuracies
The hidden economy - self employed may under declare their income, illegal activities, informal sector
Home-produced goods and services not accounted for - eg. stay at home parents
Valuation of the public sector is difficult
What can make it difficult to compare national income over time?
Quality of goods and services may improve but price may fall
Defence spending
Income distribution
Externalities
What can make it difficult to compare national income across countries?
Countries may use different accounting techniques and quality of data varies greatly
The quality of goods and services varies greatly across countries
GDP figures need to be converted to a common currency to compare but market exchange rates do not reflect purchasing power
What does purchasing power parity show?
What the exchange rate would need to be so that the same basket of goods costs the same in different countries
