AC 2.2 Flashcards
How do economists measure economic growth?
National Income/National Output/National Expenditure
What is GDP?
The sum of the value of goods and services produced in the economy.
What is a recession?
Two consecutive three-month periods of contraction.
What 3 methods are used to calculate the GDP of an economy?
- Output measure
- Expenditure measure
- Income measure
Explain the difference between total & per capita.
GDP is the total value of goods and services a country produces annually whereas PC is a measure of the country’s economic output per season.
Explain the difference between value & volume.
Volume is the quantity whereas value expresses a variable in monetary terms.
What is nominal data?
Reflects current prices.
What is real data?
Nominal data adjusted for inflation.
What’s the difference between current & constant prices?
Current prices represent the value of goods and services at the time of transaction, whereas constant prices allows for comparison of economic output over time without the distortion of price changes.
What index number represents the base year?
100
Why do economists index economic data?
To analyse time series data.
Give the formula to calculate an index number.
(Current Figure/Figure In Base Year) X 100
What does an index number of 114 tell the economist?
The value being measured has increased by 14% compared to the base period.
Write a formula to convert nominal to real data.
Real Value = (Index Of Base/Index Of Current) = Nominal/Current Value
What is GNI?
The total market value of all final goods and services produced by a country’s residents within a given period.
What is NPIA?
The difference between the income received by a country’s residents from foreign sources and the income paid to foreign residents for their contributions to domestic production.
How do economists measure living standards?
By evaluating indicators such as real GDP per capita, income distribution, access to basic services, and quality of life factors.
What are the limitations of this basic measure?
- Non-market exclusives
- Income Distribution
- Externalities
- Purchasing Power Parity
- Quality of goods & services
What is purchasing power parity?
An economic theory that compares the relative value of currencies by determining the amount of a common basket of goods and services that can be purchased in different countries
Explain the relationship between real income & subjective happiness.
Higher real income can increase well-being by enhancing access to goods and services, the impact on happiness diminishes beyond a certain income threshold due to factors like relative income & expectations
What is actual growth?
Rate of change Y/Q or AS
What causes SR economic growth?
- An increase in AD
- Higher levels of investment
- Government Spending
What is a trend growth?
The long-term, sustained increase in a country’s potential output or real GDP
What causes LR economic growth?
- Technological Advancements
- Increase in capital stock
- Improvement in human capital
List the 4 phases of the business cycle.
Boom, Slump, Recession, Recovery
State the features commonly associated with BOOM and RECESSION.
Boom - Positive Output Gap, Budget Surplus, Unemployment Falls, Profits Rise, Increased Business Confidence
Recession - Negative Output Gap, Budget Deficit, Spare Capacity, Profits Fall, Investment Falls
What is an output gap?
Difference between actual & potential GDP.
List 7 features of economies with high trend growth rate.
- Technological Innovation
- High Investment in Capital
- Skilled Labor Force
- Stable and Supportive Institutions
- Open and Competitive Markets
- High Rates of Savings and Investment
- Sound Macroeconomic Policies
