Chapter 1 Flashcards
What does the economy function at the aggregate level refer to?
It refers to how the economy operates on a societal level.
What assumptions do we make about households and firms?
They are rational and have simple objective functions.
What do national accounts show?
They show flows of production, income, consumption, savings, investment, export, and import during a specific time period.
What is GDP?
Gross domestic product.
What does the production side of GDP measure?
It measures how much different production sectors add to GDP.
What are the two components of income side in GDP?
- Labor income
- Capital income
What are the three uses of GDP?
- Consumption and investment in private sector (household and firms)
- Consumption and investment in public sector
- Net export
How is net export calculated?
NX = X - IM
What is the formula for GDP?
Y = C + I + Cg + Ig + NX
What does GDP per capita represent?
It represents the average production.
Why was GDP per capita lower in 2015?
Because population grew faster than production.
What is nominal GDP?
The value of production expressed in current year’s prices.
What is real GDP?
Production (quantity) at constant prices (a certain base year’s prices).
What does inflation measure?
It measures how much more we need to pay to buy the same basket of goods as last year.
What is the GDP deflator?
Nominal GDP divided by Real GDP.
What is purchasing power parity (PPP)?
It determines currency value based on its purchasing power.
How does PPP affect income differences between countries?
It shows smaller income differences than GDP per capita because poor countries often have lower price levels.
What does the current account balance summarize?
It summarizes the flow of income between a country and the rest of the world.
What is the formula for current account balance?
CA = NX + YF + TrF
What is Gross National Income (GNI)?
Domestic income plus net primary income from the rest of the world.
What is the formula for GNI?
GNI = Y + YF
What does Gross National Disposable Income (GNDI) include?
Domestic income, net primary income from RoW, and net transfers from RoW.
What is the formula for GNDI?
GNDI = Y + YF + TrF
How is gross savings calculated?
Gross national disposable income minus consumption.
