Chap 6 Flashcards
what is the aim of macroeconomics ?
To achieve high economic growth
To reduce unemployment (ways towards full employment)
To attain stable prices
To reduce budget deficit and balance of payment (BoP) deficit
To ensure fair distribution of income
in short: full employment , price stability , economic growth and fair distribution of income among citizens
what is the national income accounting
its an accounting record of the level of economic activities of an economy. It is a measure of an aggregate output , income and expenditure in an economy
what is the national income accounting
its an accounting record of the level of economic activities of an economy. It is a measure of an aggregate output , income and expenditure in an economy
what are the 2 approaches to measure the national income accounting?
- gross domestic product
- gross national product
what is Gross Domestic Product (GDP)
its the total value of currently produced final goods and services that produced within a country’s boundary during a given period of time.
- intermediate goods are not included
- it measures current production only
-
what is gross national product ? GNP
its the total value of final goods and services currently produced by domestically owned factors of production in a given period if time, usually one year, irrespective of their geographical locations.
what is net factor income
its the income earned from abroad - income paid abroad.
If NFI >0, then GNP > GDP
If NFI<0, then GNP < GDP
If NFI =0, then GNP =GDP
what are the 3 approaches to measuring GDP and GNP?
- product value added approach
- expenditure approach
- income approach
what is the product approach ?
GDP can be calculated by adding the market value of goods and services currently produced by each sector of the economy. but only values of final goods so that there wont be any double counting, by including intermediate goods which can be components of a final product.
1. taking only final value
2. taking the sum at each production stage
what is the expenditure approach?
GDP is measured by adding all expenditures on final goods and services produced in the country by all sectors of the economy.
GDP = C+G+I+Nx (X-M)
consumption, government purchases, investments, net exports.
what is the income approach?
GDP is calculated by adding all the incomes accruing to all factors of production used in producing the national output. minus subsidies and transfers
what are the limitations of GDP measurement ?
- Definition of a nation: its hard to find a limit to what is nation cz there is also the income of the nationals abroad.
- Stages of economic activities: its difficult to determine whether the income should be calculated at the stage of production, distribution or consumption. the objection needs to be clear.
- Transfer payments
- Underground economy ; black market , there is the value of goods in the illegal market
- Inadequate data·
- Non-monetized sector: self consumption or exchanged for other goods
- Valuation of depreciation: reduction in value over time or wear and tear.
- Changes in price levels: money’s value keeps on changing
- No focus on quality: its difficult to account for quality of goods
what is Nominal GDP?
the value of all final goods and services produced in a given year when valued at the prices of that year
it refers to GDP that is not adjusted for inflation.
if prices of a product doubles then the GDP also doubles.
(PX x Qx) + (Py x Qy)
what is real GDP?
its the value of final goods and services produced in a given year when valued at the prices of a reference base year.
Q x the P of the same product but of the base years.
what’s the GDP deflator ?
its a measure of inflation. its the ratio of nominal GDP in a given year to real GDP of that year. it reflects whats happening to the prices.
(nominal / real ) x 100. we can compare it to the base year and see how much it has increased.
