Chapter 10-12: Q3 Quiz #1 Flashcards
What is an economy?
The economy is a social institution that is primarily
concerned about the proper allocation of scarce
resources to satisfy multiple human wants.
What is a national economy?
A national economy is all the economic wants of a country.
Four key concepts of Macroeconomics
Consumption - Everyone in an economy is a consumer due to everyone buying something
Employment - This is what makes production possible.
Production - Combining factors of production into goods or services.
Income - it is the payment for the inputs used in
production and for goods and services consumed. It
is then used for consumption.
For an economy to keep on growing? What should happen?
The four key concepts of macroeconomics should be expanding for an economy to keep on growing
Another term for when an economy is shrinking is called?
Recession
National Economy’s four major interacting sectors
Consumers - (Household Sector) Total
household spending is known as private consumption and
includes everything spent on final goods and services.
Businesses: also known as firms or companies. It is responsible
for producing the goods and services to households. They
risk capital to create investment opportunities. Business
spending is also known as investment.
Public: it is the sector of the government. It is the biggest single
economic entity in the country. It generates more revenue,
spends more money, and employs more people than any other
economic entity.
Foreign: composed of the rest of the world. This is an
important sector as countries today are economically
interdependent. Trade between countries has a huge impact on
their economic development.
What are circular flow diagrams?
They show the relationship between income, and expenditures. It describes the transactions among the sectors of the economy.
Describe a simple model of a circular flow.
Considers an economy with only two sectors, household and firms.
What does GDP stand for?
Gross Domestic Product
What is GDP used for?
It’s used for measuring the size of an economy.
What is GNP?
Gross National Product. This is basically GDP, but it doesn’t include foreigners, only permanent citizens who are living in the country.
What are the three ways to calculate GDP?
- Sum of Value Added
- Expenditure Approach
- Income Approach
What is the difference between Nominal GDP and Real GDP?
Nominal GDP is GDP obtained by current market value or prices of products, meanwhile Real GDP is the market value or prices of products of a certain year.
What are the limitations of GDP?
- It doesn’t take into account volunteer works, informal sector, and etc.
Benefits of Real GDP
It can be a good way to measure short term economic growth, (1-5 years). but after 6 years this changes, as the population may have gotten bigger.
