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economics II > chapter 2: macroeconomics indicators > Flashcards

chapter 2: macroeconomics indicators Flashcards

1
Q

the uses of CPI

A
  • to harmonize countries
  • health index
  • Smoothed index
  • Central index
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2
Q

GDP

A

Gross Domestic Product equals the market value of all final goods & services produced within a given geographic area in a given period of time

or

equals the total expenditure on final goods & services produced within a given geographic area in a given period of time.

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3
Q

Macroeconomic Indicators

A
  • Measuring Unemployment
  • Measuring Economic Activity
  • Measuring The Cost of Living
  • Appendix: Measuring Growth
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4
Q

Microeconomics is concerned with

A
  1. Individual decisions, such as
    - households
    - corporations
  2. Interactions between economic agents on one specific market
  3. Incidence of public interventions
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5
Q

Macroeconomics is concerned with all questions related to the global workings of an economy among which:

A 
1 Evolution (growth) of economic activity and income long-run trend & short-run fluctuations
causes of income inequalities between countries

2 Global (un)employment

3 Inflation (growth of the general level of prices)

4 Influence of public authorities on the above-mentionned variables

5 Consequences of public debt

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6
Q

The activity rate depends on

A
  • The activity rate depends on the average schooling length (beyond compulsory education)
  • cultural determinants (e.g. attitude w.r.t. workplace gender equality)
  • the importance of early retirement
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7
Q

Aggregate

A

Synthetic indicator of a set of elementary variables

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8
Q

Ockham’s razor

A

Macroeconomists drastically simplify reality
and consider only a very restricted number of agents (Households, Enterprises, Government, Rest of the world) and markets (Goods & Services, Factors of production, Money).

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9
Q

How is unemployment defined?

A

1 Claimant count ➥ Number of claimants
PRO: Easy and cheap to establish
How is unemployment defined?

2 Labour-force survey ➥ No work during the reference week, willing to work in the coming 2 weeks and actively looking for employment for at least 4 weeks, or waiting to start working within 3 months
PRO: Uniform definition (ILO)
CON: Costly to establish

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10
Q

Natural Rate of Unemployment

A

The natural rate of unemployment is the normal rate of unemployment around which the unemployment rate fluctuates.

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11
Q

Cyclical Unemployment

A

The cyclical unemployment is the deviation of unemployment from its natural rate.

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12
Q

Economic activity

A

= Value of “what is traded” in an economy

(Why “value” and not “quantity”?= Compare an economy producing only carrots with an
economy producing computers)

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13
Q

Value Added

A

The value added of a production i = 1, . . . , n during period t is the difference between:

  • the market value of that production Pit Qit
    and the market value of the intermediate goods & services consumed for its production (:CIit)
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14
Q

GNP

A

Gross National Product:

➥ . . . produced by resident factors of production in a given period . . .

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15
Q

NDP

A

Net Domestic Product:

➥ . . . the market value, taking depreciation into account, of all final goods & services . . .

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16
Q

GDP is a measure of

A

1 total production of final G&S on the territory
➥ Sum of all values added

2 total income generated on the territory
➥ Sum of all primary incomes

3 total expenditure on the territory’s final production
➥ Sum of all spendings

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17
Q

Primary Income

A

Primary incomes describe the earnings received in compensation for the creation of value added.

  • the sum of all values added is necessarily
    equal to the sum of all primary incomes
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18
Q

Secondary incomes

A

such as allowances, unemployment or
retirement benefits, etc.

are transfers of money, i.e., not compensations for creating value added

19
Q

The earnings from creating value added are distributed to

A
  • public authorities (production taxes, incl. VAT)

- factors of production (labour, capital. . . )

20
Q

gross mixed income

A

The earnings distributed to the self-employed (worker + shareholder)

21
Q

GDI

A

Gross Domestic Income, (GDP as total income) equals the sum of all primary incomes created within a given geographic area in a given period of time.

  • does NOT include secondary income
22
Q

Disposable Income

A

Household Disposable Income

= Primary Income + Received Transfers - Paid Transfers

23
Q

Suppose we find different values for GDP in two different periods of time.

  • What could cause this difference?
A

The two values might be different because:

☞ the volume of final production has changed
☞ the prices at which production is valued have changed!

24
Q

Nominal Variable

A

Variable measured in current monetary units, i.e., based on the prices that prevail when measured

Examples:

  • Total purchases at a store checkout
  • Balance of a bank account
25
Q

Real GDP or GDP in Volume

A

Value of all final goods & services based on the prices of a reference year rather than on the current prices.

26
Q

Two methods for computing real GDP: (what you need)

A

1 GDP at constant prices

2 GDP at chained volumes

27
Q

Using constant prices leads to issues such as:

A

1) How to value new goods that didn’t exist in the base period?
2) Should we keep the same price if the quality of a good has significantly increased/decreased since the base period?
3) Shouldn’t changes in relative prices be reflected?

28
Q

Per-Capita GDP & GNP

A
  • The ratio GDPt/Nt, is the primary income created by a resident on average.
  • The ratio GNPt/Nt, is the primary income received by a resident on average
29
Q

International Comparisons

Difficulties:

A

1 Exchange rate fluctuations

2 Disparities in purchasing power r (i.e., quantity of G&S onemonetary unit can buy) within a monetary zone

30
Q

Purchasing-Power Parity Index

A

A PPP index is a conversion rate between two currencies that is calculated by comparing the domestic purchasing power of each currency

31
Q

is GDP/cap.

A Good Measure of Well-Being?

A

Indicator of material living conditions in a country

Does not account for income inequalities

Does not account for these (correlated) aspects:

  • Health, life expectancy
  • Leisure, out-of-market activities
  • Environment
  • Crime rate, etc
32
Q

Consumer Prices Index:

A

The CPI measures the overall cost of goods and services bought by a typical consumer.

33
Q

Inaccuracies / Remarks of Measuring The Cost of Living

A

1 Substitution bias
2 Introduction of new goods
3 Unmeasured changes in quality

34
Q

Substitution bias

A

☞ Consumer adjust their consumption in reaction to changes in relative prices (they consume less of the goods whose price has risen comparatively more)

➥ CPI overstates inflation

35
Q

Introduction of new goods

A

☞ Greater choice for consumers

➥ CPI loses representativeness

36
Q

Unmeasured changes in quality

A

☞ The quality of the G&S contained in the basket can change and this would justify a change in prices

➥ If quality rises, CPI overstates inflation

37
Q

CPI vs. GDP Deflator Comparison:

- Similarities

A

Both measure the overall level of prices
➥ Both can be used to compute inflation

Both depend on the chosen base period
➥ The value in any period only makes sense
when compared to the value in another
period

38
Q

CPI vs. GDP Deflator Comparison:

- Differences

A
  • Price level of what is consumed [CPI]
    vs.
    Price level of what is produced [Deflator]
  • Fixed basket [CPI]
    vs.
    Quantities change [Deflator]
39
Q

Real Variable

A

Ratio of a nominal variable to a price index

40
Q

Indexation,

Existing Indices In Belgium

A 
1 CPI
2 Harmonized CPI
3 Health index (“indice santé”)
4 Smoothed index (“indice lissé”)
5 Central index (“indice pivot”)
41
Q

Harmonized CPI

A

☞ Common European methodology to enable comparisons between EU countries

42
Q

Health index (“indice santé”)

A

☞ Based on the CPI product basket without

  • alcoholic beverages
  • tobacco products
  • motor fuels (except for LPG)
43
Q

Smoothed index (“indice lissé”)

A

☞ Arithmetic (= rekenkundig) average of the 4 latest monthly health indices

44
Q

Central index (“indice pivot”)

A

☞ Theoretical threshold that triggers an indexation wheneverthe smoothed index exceeds it

☞ Each threshold is 2% higher than the previous one

economics II (7 decks)

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