basic economic principals and relationships Flashcards
list some threats to global economic growth ?
- terrorism
- disruptions to the oil supply
- refugees
- natural disasters
- trade wars
in africa and asia :
- not industrialised
- too reliant on world commodity prices
- china is moving away from exports than africa could fill this void in but it leaves you very vulnerable.
population growth :
- by 2100 , +3bn in africa mostly
- fall in gdp per capita and standards of living + less jobs
+ new generation of workers helping the economy grow. but may depend on country, e.g. in africa they don’t have the education that will lead to new workers
define GDP ?
value of all goods and services produced in a country in a year.
REAL GDP means adjusted to price level = output x price level
what does value added mean ?
the amount by which the value of an article is increased at each stage of its production. in gdp calculations we only consider final values
what are the problems with measurements of GDP ?
- G/S quality no considered
- environment not considered
- if its not traded its not considered
- black market ?
whats the definition of unemployment ?
out of work, willing to work and been searching for atlas 2 weeks
what is the current level of unemployment in the uk ?
4%
what level should unemployment never fall below ?
the natural level of unemployment.
whats the definition of inflation level ?
sustained increase in price from year to year
whats the definition of inflation rate ?
the size of the increase in prices or % increase from year to year. rate = new - old / old x 100
what the definition GDP deflator ? and how do you calculate it ?
measure of the level of prices of all domestic goods and services. doesn’t include imports.
= nominal / real
define the CPI consumer price index ?
basket representative of an urban consumer consumptions includes imports
why do we want stable inflation ?
helps stabilise consumption so people don’t wait for prices to drop or panic buy.
helps calculate wages and make wage agreements.
what did the german socio economic panel survey show us ?
- becoming unemployed leads to a large decrease happiness.
- happiness declines even before the actual spell of unemp
- happiness does not recover to the same level once re employed, even four years after.
what is the HICP ?
harmonised index of consumer prices. like CPI but used by the euro central bank.
how do the HICP and GDP DEFLATOR compare ?
as the gdp deflator does not include imports and the hicp does, it means that sometimes they give different values although in general they show the same pattern usually but some things can cause large differ fences.
what is OKUN’s law ?
states the relationship between output and unemployment when unemployment falls 1% - growth increases by 3%
- output growth that is higher than usual is associated with a reduction in the unemployment rate.
- lower - increase
what is the phillips curve ?
shows the relationship between unemployment and inflation.
low unemployment leads to an increase in the inflation rate
high unemployment leads to a decrease in the inflation rate
when the inflation rate is stable unemployment is 6%
how do we study economic behaviour ?
requires us to keep all exovariables constant and then build a model.
what models do we look at in the
a. short run
b. medium run
c. long run
a. keynsian model / islm model
b. phillips curve / as ad model
c. growth theory / neo classical model / indigenous model
the total demand ( Z ) for domestic output is made of 4 components. name them
Y = Z = C + I + G + ( X - IM )
C -consumer spending by households
I - gross private domestic investment spending by firms
G - government spending
NX - net exports
discuss the component of GDP: consumption ?
- its the primary component
- includes spending on durables, non durables and services
- consumption as a share of GDP varies by country
US: 71% , JAPAN: 60%, UK: 62%
discuss the component of GDP: government purchases ?
- transfer payments are not included since its not a part of current production
- UK: 19%, US: 12%, JAPAN: 21.3%
discuss the component of GDP: physical investment ?
- investment that adds to the physical stock of capital.
- includes inventories or stocks of capital.
- UK: 17%, US: 20%, JAPAN: 21%
discuss the component of GDP: NET EXPORTS ?
- when we have bop deficits we need capital account surplus
- US: -3%, JAPAN: -2.3%, UK: -2%
