3.1 Measuring Economic Activity

Question 1

What is the circular flow of income and draw it

Answer 1

Showa that in any given time period the value of output produced in an economy is qual to the total income generated in producing that output

Question 2

What are leakages and investments in the circular flow of income

Answer 2

Leakages:
- savings
- taxes
- imponer spending

Injections:
- investment
- government spending
- export spending

Question 3

How economic activity measured

Answer 3

Expenditure approach — adds up all spending to buy final goods and services produced within an economy over a time period

Income approach — adds up all income earned by the factors of production that produce all goods and services within a country over a time period

Output approach — calculates the value of all final goods and services produced in a country over a period of time

Question 4

Expenditure approach formula

Answer 4

C + I + G + (X-M) = GDP = AD

Question 5

What is GDP

Answer 5

Gross domestic product is the market value of all final goods and services produced in a country over a time period

Question 6

What is GNI

Answer 6

GNI includes GDP but subtracts the earnings from foreign assets operating in the country, and adds income from
assets in foreign countries

GNI = GDP− Net Property Income from Abroad

Question 7

What is nominal GDP/GNI

Answer 7

Value of respective economic measurement not adjusted for inflation

Question 8

What is real GDP/GNI

Answer 8

GDP/GNI adjusted from inflation

Question 9

What is GDP per capita

Answer 9

Provide indication of how much total output or total income in the economy corresponds to each person in the population on average

Question 10

Calculating real GDP

Answer 10

(Nominal GDP/price delator) *100

Question 11

GDP per capita formula

Answer 11

Real GDP/population

Question 12

What are business cycles

Answer 12

Short-term fluctuations in growth of real output, which are alternating periods of expansions and contraction

Question 13

What are phases of business cycle

Answer 13

Expansion

Peak

Contraction

Trough

Question 14

Why GDP/GNI do not accurately measure the true value of output

Answer 14

• do not include underground markers
• do not take into account quality improvements in goods and service
• do not take into account depletion of natural resources
• do not account for the value of negative externalities such as pollution and other undesirable by-products of production

Question 15

Why GDP/GNI cannot accurately measure economic-well being

Answer 15

• cannot reflect achievements in levels of education, health and life expectancy
• provide no information on distribution of income
• does not account of quality of life

Question 16

Why gather national income measures (GDP / GNI)

Answer 16

Comparison over time (growth)

Comparison between countries

Question 17

What 3 other methods of measuring well being

Answer 17

OECD better life index

Happy Planet Index

Happiness index

Question 18

Explain the OECD better life index

Answer 18

Based on a number of factors that the member countries themselves select as factors that make better life

Question 19

What is the happiness index

Answer 19

Focused on gathering scientific knowledge to encourage policies for sustainable development.

Based on:
- real GDP per capita
- social support
- health life expectancy
- freedoms to make life choices
- perceptions of corruption

Question 20

What is happy planet index

Answer 20

Intended to be a measure of well being. Takes into consideration life expectancy, how people feel about their own personal well-being and ecological footprints