4. THE MACROECONOMY Flashcards by Julia Yim

National income

Total monetary value of all goods & services produced by a country within a given time period

Represents economic activity & living standards

Goods must not be counted twice

Considers net property income from abroad & depreciation

How well did you know this?

Not at all

Perfectly

GDP

Total ouput produced in a country

How well did you know this?

Not at all

Perfectly

Types of GDP

Nominal GDP & real GDP

How well did you know this?

Not at all

Perfectly

Nominal GDP

GDP at current market prices

How well did you know this?

Not at all

Perfectly

Real GDP

GDP adjusted for inflation

How well did you know this?

Not at all

Perfectly

GNI

GDP + income earned from abroad

How well did you know this?

Not at all

Perfectly

Uses of GDP

Measures economic activity within country’s bonrders

not accounting for income earned from abroad

How well did you know this?

Not at all

Perfectly

GNI significance

Reflects total income of a country

How well did you know this?

Not at all

Perfectly

NNI

GNI - depreciation

How well did you know this?

Not at all

Perfectly

Significance NNI

Accounts for loss of value in capital goods over time, giving more accurate measure of sustainable income

How well did you know this?

Not at all

Perfectly

Market prices

Prices at which goods and services are sold, including taxes and subsidies

How well did you know this?

Not at all

Perfectly

Basic prices

Prices excluding indirect taxes and subsidies

How well did you know this?

Not at all

Perfectly

Adjustment process

Subtract indirect tax
Add subsidies
Adjustment reflects the real cost of production in an economy

How well did you know this?

Not at all

Perfectly

Gross values

Measure of value of goods & services

Include depreciation of capital (e.g machinery, buildings)

How well did you know this?

Not at all

Perfectly

Net values

Subtract depreciation from gross value to show the true value of an economy’s productive capacity

How well did you know this?

Not at all

Perfectly

Closed economy

No international trade
Flow of income between households, firms & gov

How well did you know this?

Not at all

Perfectly

Open economy

Includes international trade, w/ income flowing between households, firms, gov, foreign economies

How well did you know this?

Not at all

Perfectly

Injections in economy

Additions to country’s income flow
Investments
Government spending
Exports

How well did you know this?

Not at all

Perfectly

Leakages in economy

Withdrawals from country’s income flow

Savings
Taxes
Imports

AD definition

Total demand for goods & services in an economy at diff price levels within certain period

Formula AD

C + I + G + (X-M)

Components of AD

C (Consumption)
Spending by households on goods and services.

I (Investment)
Spending by firms on capital goods (factories, equipment)

G (Government spending) Government expenditure on public goods and services

(X - M)
Net Exports (Exports - Imports), representing the trade balance

Causes of shift in AD curve

Increase in AD
Rise in consumer confidence
Gov spending
Business investment

Decrease in AD
Fall in any of the above

Determinants of AS

Short run
- changes in input cost
- labour productivity
- wage rates
- capital utilisation

Long run
- technological advancemnets
- labour growth

AS definition

The total supply of goods and services that firms are willing to produce at different price levels

Causes of a shift in the AS curve

SRAS: Changes in input prices (e.g., wages, raw materials), supply shocks. LRAS: Changes in resources (e.g., labor force, capital), technological progress

Movement along AD/AS

Caused by a change in the price level

Shift in AD/AS

Caused by changes in factors other than price level (e.g., government policies, external factors)

Effects of shifts in the AD curve

Rightward: Increases output and price level (inflationary pressure) Leftward: Decreases output and price level (recessionary pressure)

Effects of shifts in AS curve

Rightward (increased productivity) Decreases price level, increases output Leftward (supply shocks) Increases price level, decreases output

Economic growth

Increase in an economy's output over time, measured by increase in real GDP

Measurement of economic growth

Real GDP growth- adjusted for inflation to reflect actual increases in the economy's output

Causes of economic growth

Increase in capital Technological progress Improvements in labour Increased trade

Positive consequences of economic growth

Higher living standards Lower unemployment Greater gov revenue

Negative consequences of economic growth

Environmental degradation Inequality Inflationary pressure

Unemployment

The condition where individuals who are willing and able to work cannot find employment

Frictional unemployment

Temporary unemployment due to people moving between jobs

Structural unemployment

Mismatch of skills and jobs, often due to technological change

Cyclical unemployment

Due to economic downturns (e.g., recession)

Seasonal unemployment

Due to changes in demand during different times of the year

Negative consequences of unemployment

Lower living standards Reduced gov tax revenue Social costs Increased poverty & inequality

Inflation deflation disinflation

Inflation: A general increase in the price level of goods and services. Deflation: A decrease in the general price level. Disinflation: A decrease in the rate of inflation

Consumer price index

A measure of the average change in prices paid by consumers for goods and services

Demand-pull inflation

When demand > supply firms struggle to meet increased demand, imbalance cause price to rise

Cost-push inflation

When cost of production increases, firms must increase price to maintain profits

Positive consequences of inflation

Can reduce real debt Signal economic growth

Negative consequences of inflation

Reduced purchasing power Uncertainty Income redistribution Higher interest rates