3.1 - measuring economic activity and illustrating its variations Flashcards
National income
- value of goods/ services produced by a country during a financial year
- measure of total economic activity
Gross domestic product (GDP)
- stats of national income
- total monetary value of final goods/ services produced within a country’s borders (economy) in a specific time period
Gross national product (GNP)
- value of all final goods/ services owned by a country’s citizen over a period of time
- Similar to GNI but It also adds subsidies and taxes from foreign sources
Green GDP
GDP that accounts for loss of biodiversity & costs caused by climate change
Income method
All income from factors of production/ factor payments
- calculate NI = W + R + I + PI + CP
- calculate GDP = NI + indirect business taxes + depreciation + NFFI (net foreign factor income)
output method
- total volume of production from firms
(firms are surveyed for their output)
cons of income method
- only effective if economic activity is registered
- countries with high levels of corruption difficult to measure GDP —> illegal drugs + legal babysitting
- unreported economic activity –> people who lack birth certificate, social security…
expenditure method
- total spending—> adding up sales receipts of goods/ services + government spending, investments, net exports
- GDP = C + I + G + (X-M)
how real GDP growth contributes to an improved standard of living
- more economic output (production of goods and services)
- job opportunities
- improved wages
- more to invest on infrastructure
- consumer confidence
- less poverty!
factors of production
land, labour, capital, entrepreneurship
factor payments
- payments made to factors of production to produce goods/ services
wages, rent, interest, profit, dividend
GNI
GDP, but factors in citizens earning income from abroad
GDP + net income from abroad —-> incomes flowing in- incomes flowing out
real GNI per capita
income per person in the country
Purchasing power parity (PPP)
- the size of an economy by its power to purchase goods and services within that country
- refers to measuring the prices for goods and services in different locations
National income accounting by governments can be made by adding up all the income categories (rent, wages, interest and profits), the added value of every output category (from primary , secondary and tertiary industries) or expenditure categories in an economy. In other words:
Income = Output = Expenditure
happy life index
- uses 4 indicators to show efficiency of economic resources among residents
- takes ecological footprint into account
recession
A decrease in GD, fall in economic output occurring for longer than two quarters.
decrease in GDP vs decrease in GDP growth rate
- decrease in GDP = fall in economic output (recession if longer than 2 quarters)
- decrease in GDP GROWTH RATE: increase in GDP but at a slower rate than previous quarters
pros of GDP as a measure of growth
- comparison w/ other countries
- insight to average income
cons of GDP as a measure of growth
- overestimates quality of life
- cannot tell you about income distribution
- inaccuracies
- doesn’t account for improvements in quality of output
- GDP ONLY MEASURES OUTPUT…
why might GNI be higher or lower in some countries
GNI in a country might be higher than the GDP of a country if they receive a large amount of
foreign aid
The GNI in a country might be lower than the GDP of a country if foreigners control a large
amount of a country’s production
business cycle
- fluctuations of real output as it trends upwards over time
