2.4.4, 2.2.5, 2.1.1, 2.5.1, 2.5.4 - Multiplier, Trade, Growth Flashcards
What are the equation for calculating the multiplier effect (3)
multiplier = Δy / ΔAD
multiplier = 1/ 1- mpc
multiplier = 1/mps + mpt + mpm
What are the limitations of the multiplier effect
Long time lag
Difficult to estimate value of multiplier (may over-spend or under-spend)
what is net trade
net trade = Value of exports – Value of imports:
When there is trade surplus, what is the relation between value of exports and imports.
Value of exports > Value of imports
when there is a trade deficit, what is the relation between exports and imports
Value of exports < Value of imports
What are the factors affecting net trade
exchange rate, trade barriers
What happens to net exports when domestic currency depreciates against foreign currency.
Domestic currency (£) depreciates against foreign currency (€)
Exports appear cheaper → Volume of exports↑
Imports appear more expensive → Volume of imports↓
Net exports(X – M)↑
What happens to net exports when domestic currency appreciates against foreign currency.
Domestic currency (£) appreciates against foreign currency (€)
Exports appear more expensive → Volume of exports ↓
Imports appear cheaper→ Volume of imports ↑
Net exports (X – M)↓
What is nominal gdp
Total market value of final goods and services produced in an economy over a period of time, expressed in current prices.
Equation for gdp per capita
GDP per capita - Real gdp/ total population
What is PPP
Purchasing power parity is calculated by comparing the prices of a basket of goods and services in different countries.
What is GNI
Income earned by residents (including domestic income and income
from abroad)
GNI = GDP + Net factor income from abroad
What are the limitations of national income statistics in comparing quality of living
Relative importance of GDP components
Income/wealth inequality
Pollution
What is economic growth
an increase in the real gdp of an economy caused by an increase in either AD or LRAS.
