2.1 Flashcards
(41 cards)
GDP
is the market value of all final goods and services produced domestically in a time period
GDP can be measured in 3 ways
output measure- value of goods and services produced by all sector the economy
expenditure measure- value of goods and services purchased by households and gov, investment in machinery and building
Income measure-value of the income generated mostly in terms of profits and wages
Formula for GDP
C+I+G+(X-M)
GNI
Gross national income
GNI is GDP plus what a country earns from overseas investment and subtracts what foreigners earn in a country and send back home
GDP per capita
+calc
is used to estimate living standards for people in a country
Total GDP/population
Real GDP
is a measure of a country gross domestic product that has been adjusted for inflation
Nominal GDP
is the figure given without taking inflation into account
PPP
Purchasing Power Parity
Exchange rate- the rate at which the currency of one country would have to be converted into that of another country to buy the same amount of goods and services in each country
6 limitation of GDP
-the black market-illegal activities, drugs, unreported income
-non-market activities-where money isn’t involved, house chores
-environmental factors
-happiness
-sustainability
-balance of GDP
Black market
The shadow economy or black market
Money earned from:
-illicit activities
-illegal drugs
-unreported income of worker
Non market activities
-any activities where money isn’t involved
e.g. chores
Environmental factors
-poor at recognising environment costs e.g. pollution
-there should be a green GDP
Happiness
-no adjustment for happiness
-Should take into account stress levels
Sustainability
-not measured sustainability of growth
-faster, economic growth may improved living standards today, but lead to an overall exploitation of scarce resources, thereby limiting future growth prospects for next generation
Balance of GDP
-The spending composition of GDP can be very different
-Some countries, large amounts of GDP may be spent on the arms industry, while others may be spend money on health and education
Inflation is
When the average price of goods and services is rising over a period of time
Deflation is
Negative inflation, when average prices are falling overtime
Disinflation occurs
When inflation is slowing down, prices are still rising, but at a slower rate
What causes inflation (3)
-printing money
-Underproduction less output, shortage in the economy
-Oil prices
What impact does inflation have
-people ask for wage increase
-More strike/industrialise interest
-Falling living standards
-Slow economy
-We become less competitive with other countries
What is CPI
-consumer price index
-The government measures inflation by tracking the price of typical basket of goods every month
600
What are the limitations of CPI
-The CPI is not representative for everyone
-New products-slow response to new products
-changing quality of goods and services-prices may rise, but also quantity may rise
What are the three other measures of inflation?
- consumer price index, CPI
-consumer price index, including housing costs (CPIH). (This is a new measure that tries to include more costs, but is improving difficult to measure accurately)
-The retail price index (RPI) Thus is an older measure of inflation
Demand pull inflation
-caused by excess aggregate demand
-Often linked to credit boom
-Economy close to full capacity
-C+I+G+X-M =demand on economy
