basics Flashcards
core macroeconomic indicators
T - trade - balanced
I - inflation - low and stable - 2%
G - growth - strong and sustained
E - employment - low/full
R - redistribution of income - fair
S - stability
non core macroeconomic objectives
-sound government finances
-environmental sustainability
-productivity growth
trade deficit
when value of imports exceeds exports
trade surplus
when value of exports exceeds imports
circular flow of income
-consists of households and firms
-households provide FoP to firms
firms utilize these FoPs to create G/S, rewarding households with income
-households spend their incomes on goods/ services
injection
occur through investment by firms, government spending and exports
leakages
savings, taxation and imports
income that does not circulate back into domestic spending
how the balance of injections and leakages determines the nature of growth
excess injections indicate growth
excess leakages indicate a decline
multiplier affect
when an injection is made into the circular flow of income
the actual change in the national income is greater than the initial injection
how to measure economic growth
GDP
-output method
-income method
-expenditure method
output method
summing the final value of all goods/ services produced
income method
adding all factor incomes earned in an economy such as wages, profits and rents
expenditure method
calculating total expenditures on a countrys goods/ services including consumption, investment, gov spending and net exports
closed economy
a economy with no international trade
multiplier
process by which any change in in the components of AD will lead to an even greater change in national output
1 / 1-MPC
accelerator
changes in investment can be directly linked to changes in rate of GDP growth
negative output gap
where actual output is less than potential ouput
positive output gap
where actual output is greater than potential output
four main ways to measure economic performance
-rate of economic growth (change in national ouput over a period of time)
-level of unemployment
-rate of inflation
-state of balance of payments
output can be calculated by
value
volume
