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ECON 2H03 > Chapter 2 - The Data of Macroeconomics > Flashcards

Chapter 2 - The Data of Macroeconomics Flashcards

1
Q

What is the best measure of economic performance?

A

GDP

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2
Q

How often is GDP calculated? Where is the information from? What 2 kinds of data are used?

A

Quarterly from primary data sources (administrative data and statistical data)

administrative data: products of govt. functions (tax collections:)

statistical data: govt. surveys (retail establishments, farm activity)

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3
Q

What 3 things does GDP measure?

A

Total output of G&S
Total income of all individuals
Total expenditure of all individuals (spent to buy G&S)

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4
Q

What is the circular flow?

A

firms receive labor and expenditures, households recieve goods and income

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5
Q

what are the three equivalent approaches to GDP? What is the underlying logic? What is the fundamental identity of national income?

A

Any output produced (product approach) is bought by someone (expenditure approach) and results in income to someone (income approach)

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6
Q

What are the equation(s) and definition for GDP as total output (Approach 1)?

A

GDP as total output: market value of all final goods and services produced within econ in period.

GDP = value of all final goods produced = sum of all stages of production

Value added = value output - value intermediate goods used to produce
aka. value added = revenue - cost of intermediate goods
Market value (MV) = P*Q

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7
Q

What is the benefit of using market value of goods? What is the disadvantage?

(GDP as total output)

A

Benefit: allows adding together unlike items by using common value for all.

Challenge: misses nonmarket items (household production)

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8
Q

What are the final goods? What is included?

A

final G&S: not intermediate,(made and used in production same period)

Capital goods: used to produce other goods, not used in same period (ex. ovens)

Inventory investment: change in all: unsold FG, WIP, RM)

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9
Q

What are imputed value goods? What are 2 examples?

A

imputed value: estimated value of goods/services with no market value

EX. housing services (homeowners): GDP includes rent that owners pay
imputed rent: is in homeowner’s expenditure and homeowner’s income

EX. Valuing govt. services: 911, senators salary
GDP measure’s value at their cost (wages)
subjectivity: what is the value of these services to different customers (ex. not all value health care the same)

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10
Q

What is the formula for GDP under the expenditure approach

A

Y = C + I + G + NX
Value of total output = aggregate expenditure
Consumption, Investment, Gov spending, Net exports

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11
Q

What is included in the consumption (C) component of aggregate demand?

A

the value of goods bought by households
includes:
durable (car, appliance)
nondurable (food, clothing)
services (intangible)

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12
Q

What is Gross Fixed Investment (I) component of aggregate demand? What does it include? What is the formula?

A

Gross-fixed investment (I): spending on new capital, a physical asset used in future production

Includes:
- Business fixed investments: spending on plant and equip
- Residential fixed investment: spending by consumers/landlords on housing
- Inventory Investment: change in the value of all firm’s inventories

Formula:
Gross investment = net investment (additions to capital) + depreciation

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13
Q

What are stock and flow quantities?

A

Stock: quantity measured at point in time (ex. as at today)
EX. wealth, #people with degrees, gov. debt, credit balance

Flow: quantity measured per unit of time, rate of change (ex. during this year)
EX. annual savings, #nwe grads this year, gov. deficit

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14
Q

What is government spending (G)? what is excluded ?

A

Government spending (G): on g&s
Excludes:
Transfer payments (one-way transactions; included in gov outlays, used in consumption component)

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15
Q

How can you avoid double counting when calculating G

A

avoid double counting by excluding transfer payments, since they are included in C component

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16
Q

What are net exports? what is the formula?
What impact does closed economy have on NX

A

net spending from abroad on our g&S

Formula: NX = exports - imports

NX = 0 under a closed economy (no outside trade)

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17
Q

What is the definition and equation for GDP under the income approach

A

GDP at factor cost

GDP = NI + NIBT + Dep + factor income paid - factor income received

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18
Q

How do you calculate GDP from income approach (interim calculations)

A

NI = NNI- NIBT
NIBT = taxes - subsidies = NNI - NI
Dep. = given typically
GDP = NI + NIBT + Dep + factor income paid - factor income received

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19
Q

GDP vs GNP
When are each preferred/ideal?

A

GDP: total income earned by domestically located factors of prod. (regardless of people’s origin)
- Ideal: considering economic performance, activity within a nation (country only)

GNP: total income earned by nation’s factor of production (regardless of where they are located)
- ideal: economic activity created by CAD ppl inside/outside of Canada (people only)

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20
Q

What is GNP equation vs GDP equation (going from one to another)

What are the differences in the formulas?

A

GNP = GDP + factor income received - factor income paid
GDP = GNP - factor income received + factor income paid

GNP includes factor income received by domestic factors of production located abroad
GDP: includes factor income paid to foreign factors of production located domestically

21
Q

what is NNI? Formula? % of GNP?

A

Net National Income (NNI): consumption of fixed capital.
NNI is the net result of economic activity (depreciation tal, cost of production)

NNI = GNP - Depreciation

Typically, NNI ~ 10% of GNP

22
Q

What is National Income (NI)? Formula? 3 Components?

A

National Income (NI): adjusted NNI for indirect business taxes (such as sales tax)
measures how much everyone in the economy has earned

NI = NNI - IBT

3 components:
compensation employees (wage/benefit)
corporate profit
non-incorporated business and net interest income:
= rent - expenses + interest pay/earnings
IBT: changes market price depending on the elasticity of S/D (ex. sales tax)

23
Q

What is personal income? What is Formula? What is Personal Disposable Income?

A

PI: income that households and non-corporate. businesses receive
PI = NI - corp. profit + dividend - social insurance contributions + gov transfers - net interest
where.. net interest = interest paid - interest received

Personal Disposable Income: PI after tac
PDI = PI - personal tax payments

24
Q

What is nominal GDP? What is real GDP? What are their respective change factors?

A

Nominal GDP: measures values using current prices (Pcurrent*Qcurrent = Nominal GDP)
change factors: change in P, Q produced

Real GDP: measures values using prices at a base year (Pbase*Qcurrent = Real GDP)
Change factors: change in Q (takes out price effect)

25
Q

what does real GDP show us?

A

shows us true increase in production and employment

26
Q

when are real GDP and nominal GDP equal?

A

they are equal at the base year

27
Q

Define the inflation rate. What graphically represents the inflation rate?

A

Inflation rate: percentage increase in the overall level of prices

Graphically: inflation rate is the slope of the GDP deflator

28
Q

What is the GDP Deflator?

A

GDP deflator: one measure of price level (ratio of nominal GDP to real GDP)

29
Q

What is the formula for the DSG Deflator

What is the significance of value?

A

GDP Deflator = (nominal GDP/Real GDP)*1

if deflator <100: avg. price falling
if deflator =100: avg. price constant
if deflator <100: avg. price rising

30
Q

In any given base year, what value is the GDP deflator?

A

100

Becuase:
1/1*100 = 100

31
Q

what is the formula for inflation

A

inflation (current period) = (Deflator_current - Deflator_previous) / deflator_previous) * 100

aka = new-old/old

32
Q

What is consumer price index?

Who is it published by?

A

measure of overall level of prices.

published by stats Canada

33
Q

What is CPI uses

A

track change in household cost of living
adjusts contracts for inflation
allow comparisons of dollar amounts over time

34
Q

How do we build CPI

A

survey consumer basket
compute the value of the basket monthly (using formula)

Formula: CPI (any month) = 100*(currentcostforbasket / baseperiodcostforbasket)

35
Q

What is the formula for the CPI of any given month

A

CPI (any month) = 100* (basket current cost month) / basket base cost month

36
Q

why does CPI overstate inflation? (3 reasons)

A

Substitution bias: CPI fixed weights do not reflect consumer substitution affect

introduction of new goods: consumers more better off 0> rise real dollar value, CPI fixed weights (unimpacted)

Unmeasured changes in quality: improvements increase dollar value (not often)

37
Q

What is the magnitude and consewuesnces of bias in CPI stating inflation?

A

Distorts private contracts (L wage overstated by more than the CPI_

Magnitude: CPI overstates inflation by 1.1% per year

increases in gov outlays: 1/3 federal gov outlay, tie benefits to CPI (ex. social security, food stamps, military/civil servant pensions) aka transfer payments

38
Q

CPI vs GDP deflator:

what is differenc in basket size?
What is difference in basket of goods composition/structure

What goods are included in each (speaking domestic/internationally)

A

GDP deflator: prices of all G&S
CPI: subset of total goofs (not all)
- relevant for household averages

GDP Deflator: basket changes yearly (Paasche; variable)
CPI: basket is fixed (Laspeyres: constant)

GDP: price of capital goofd include (if made domestically)
CPI: prices of imported goods included (and the domestic ones)

39
Q

What are the two arithmetic tricks for working with %changes

A

%change (X*Y) = %changeX + %changeY (approximation)
%change (X/Y) = %changeX - %change Y (approximation)

40
Q

What is formula for:
Population
WAP
LF

A

population = WAP + NWAP
WAP = LF + NLF
LF = E + U

41
Q

What is included in Working age population (WAP)

What is included in non-working age population (NWAP)

A

WAP: 15+
exceptions: not in jail/hospital/institutions

NWAP: <15
or in institutional care

42
Q

What is the Labor force? Who is included?

A

Labor force: the amount of labor available for producing G&S.

includes: employed & unemployed
LF = U + E

43
Q

What criteria must be met to be unemployed

A

active efforts finding work in last 4 weeks
waiting for a call back from a temp lay-off
starting job within one month

44
Q

What are the two labor market indicators

A

unemployment rate and LF participation rate

45
Q

Who is Not in Labor Force (NFL)?

A

full-time students and discouraged workers

46
Q

What is the labor force survey (LFS)? What info is found through this?

A

stats Canada monthly survey of about 56,000 households

Info found: labor market stats
ex. # in LF
unemployment rate
participation rate

47
Q

What is unemployment rate formula?

A

%LF unemployed

U-rate (%) = U/LF*100

48
Q

What is ldefinition and formula abor force participation rate?

A

LFPR: % of adult population that works or is looking

LFP rate (%) = LF/POP*100

49
Q

What happends to LFP rate and U rate when there is a recession? expansion?

A

Recession:
LFP falls
U rate rises

Expansion:
LFP rises
U rate falls

ECON 2H03 (8 decks)

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