Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

IB ECONOMICS: Unit 3 - Macroeconomics > 3.1 Measuring Economic Activity (GDP, Business cycle, Circular income) > Flashcards

3.1 Measuring Economic Activity (GDP, Business cycle, Circular income) Flashcards

1
Q

circular flow of income

A

macroeconomic model used to explain how national income and economic activity are determined based on the interactions between economic decision makers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

How is economic activity generated

A
  • households provide factors of production in return for income
  • factors of production allow firms to generate goods and services for consumption
  • income of households is used to consume goods and services, providing firms with income required to pay returns on factors of production
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

leakages in circular flow of income

A

savings, taxation, imports

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

injections in circular flow of income

A

investment, government spending, exports

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

equivalence of measures of economic activity

A
  • National income (Y), national output (O), national expenditure
  • national income is the return from generating national output that has been purchased by national expenditure
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

GDP

A

value of all goods and services produced within a country over a year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Nominal GDP

A

measures national output using current prices, the value is not adjusted for inflation and is accurate only at the time of measurement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

expenditure method

A
  • method of calculating GDP by adding the totals of consumption expenditure (C), investment expenditure (I), government expenditure (G) and net export expenditure (X-M)
  • GDP = C + I + G + (X-M)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Gross National income

A

the total income of a country irrespective of location of factors of production

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

real GDP

A
  • takes inflation into account

- allows more accurate comparisons of economic activity over time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

circular flow of income

A

macroeconomic model used to explain how national income and economic activity are determined based on the interactions between economic decision makers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

how is economic activity generated

A
  • households provide factors of production in exchange for income
  • firms use factors of production to produce goods for consumption
  • households consume goods, providing firms income that is used to pay returns on factors of production
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

equivalence of the measures of production

A
  • national income (Y), national output (O), national expenditure (e)
  • national income is the return from generating national output that has been purchased by national expenditure
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

GDP

A

measure of all goods and services produced within a country over a yeat

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

nominal GDP

A

measures national GDP using current prices that are not adjusted for inflation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

expenditure method

A
  • expenditure becomes income to actors that produce output
  • sum of consumption, investment, government spending and net export earnings
  • C + I + G + (X-M) = GDP
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

GNI

A

total GDP along with net factor income earned abroad, meaning it refers to the country’s total income irrespective of location of factors of production

18
Q

real GDP

A

Real GDP takes inflation into account by using a price deflator to allow for more accurate comparisons of economic activity over time

19
Q

GDP deflator

A
  • measure of the general level of inflation in a country
  • shows extent of changes in price level
  • e.g GDP deflator of 106.5 = prices have risen 6.5% from the base year
20
Q

real GDP formula

A

nominal GDP / GDP deflator

21
Q

purchasing power parity

A
  • exchange rate that enables residents to purchase a basket of goods and services in different countries
  • equalises the purchasing power of two currencies by considering different inflation and costs of living
22
Q

business cycle

A
  • describes the periodic fluctuations in the level of economic activity in a country over time
  • shows short term fluctuations as well as long term growth trends
  • in practice tends to be unpredictable and irregular
23
Q

boom in the business cycle

A
  • economic activity rises
  • increase in aggregate demand
  • general price level rises due to increased expenditure
24
Q

peak in the business cycle

A
  • economic activity is at its highest level
  • unemployment is low
  • high confidence
25
Q

recession

A
  • fall in GDP for two consecutive quarters
  • decline in economic activity caused by business failure and employment issues
  • uncertainty and reduced confidence
26
Q

slump in the business days

A
  • bottom of a recession
  • GDP is at its lowest
  • negative economic growth, business closures, cyclical unemployment
27
Q

Recovery in the business cycle

A
  • occurs when GDP starts to rise after a slump and recession
  • creates employment
  • increases confidence
28
Q

economic growth

A

a condition wherein the level of economic activity rises as measured by the value of real GDP characterised by increase for two consecutive quarters, lower unemployment and higher inflation

29
Q

Potential Output

A

highest level of real GDP that can be sustained over a long period of time

30
Q

exogenous shocks

A

Unexpected or unpredictable shocks that impact the economy and its components positively or negatively. They can distort the trendline of growth within an economy’s business cycle

31
Q

Counter-cyclical businesses

A

Businesses that sell inferior goods and as a result thrive during recessions

32
Q

Fall in GDP growth vs fall in GDP

A

Fall in GDP = recession

fall in GDP growth = still growing, but at a slower rate

33
Q

phases of the business cycle (in order)

A
  1. expansion
  2. peak
  3. recession
  4. slump
34
Q

phases of the business cycle (in order)

A
  1. peak
  2. recession
  3. slump
  4. recovery
  5. boom
35
Q

benefits of knowing national income and output

A
  1. asses economic performance over time
  2. compare differences between economies
  3. establish a basis for policy implementation
36
Q

Formula for GDP deflator

A
  • (nominal GDP / real GDP) x 100
  • base year index (usually 100) + rate of inflation
  • rate of inflation is accumulated, so add all previous years
37
Q

why use GDP to measure well-being

A
  • comparisons over time and with other countries

- indication of standard of living (dependent on amount of goods and services the individual is able to consume)

38
Q

Limitations of GDP and GNI

A
  • do not show distribution of income
  • does not reveal varying taxes
  • differences in cost of living are ignored
  • exchange rate fluctuations male comparisons less meaningful over time
  • extent of social welfare varies
  • do not reveal the composition of national output
  • can be inaccurate or underreported dye to hidden economic activity or a high informal sector
  • does not show the extent of negative externalities
39
Q

Alternatives to GDP and GNI

A
  • Green GDP
  • OECD Better life index
  • happiness index
  • happy planet index
40
Q

OECD better life index

A
  • organization for economic cooperation and development
  • 11 topics identified to be essential in terms of material living conditions and quality of life
  • e.g housing, income, jobs, education, safety, governance etc
  • like-for-like comparisons difficult
  • complex, hard to quantify, somewhat subjective
  • more informed policy making
41
Q

Happiness index

A
  • UN Sustainable Development Solutions Network
  • Annual world happiness report
  • representative samples of respondents in a country
  • 14 indicators of well being
  • believe that happiness leads to greater productivity, performance and profits as well as peace, progress and purpose
42
Q

Happy planet index

A
  • new economics foundation 2006
  • measure the extent to which individuals and countries are able to achieve long, happy and sustainable lives
  • considers current and future prosperity of individuals and societies
  • emphasizes importance of happy, healthy and sustainable lives without jeopardizing
  • considers well-being, life expectancy, inequality of outcomes, ecological footprint
  • (well-being x life expectancy x inequality) / ecological footprint

IB ECONOMICS: Unit 3 - Macroeconomics (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions