Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

1.c2ME Class 2 - 2024-2025 > Circular flow diagram and GDP > Flashcards

Circular flow diagram and GDP Flashcards

1
Q

What does GDP stand for

A

Gross domestic product

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is GDP

A

the dollar value of ALL FINAL goods and services produced in a country in one year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is GDP measured in

A

dollars

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What does GDP exclude

A

inputs only final products/services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are the 3 ways to measure GDP

A
  1. expenditure approach (most important one)
  2. income approach
  3. value added approach

All of them will give the same answer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Explain the expenditure appoarch

A

looks at all the purchases made on goods and services in a year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is included in the expenditure approach to calculating GDP

A
  1. consumer spending (consumers)
  2. Businesses - investment spending
  3. Gov. - government spending
  4. other countries - exports less imports = Net exports
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the formula using the expenditure approach to calculate GDP

A

GDP = C + I + G + (x-m)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Explain the income Approach to calculate GDP

A
  • all the income earned by all the purchases

everyone’s spending is someone’s income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is included in the income apporach

A
  1. wages
  2. rent
  3. interest
  4. profit
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the formula for the income approach

A

wages + rent + interest + profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the value added approach

A

adding up the value added at each stage of the production process

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

ex. selling hats (only thing produced int he country)

Cost = $3 for year
sells for $10

how do you calculate this using the consumer spending approach

A

consumer spending is $10
GDP = $10 (value of final good)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

ex. selling hats (only thing produced int he country)

Cost = $3 for year
sells for $10

how do you calculate this using the income approach GDP

A

$7 profit toward national income
$3 profit buy the guy who sold you the yarn
—–
$10 GDP

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

ex. selling hats (only thing produced int he country)

Cost = $3 for year
sells for $10

how do you calculate this using the value added approach

A

person who converted the raw cotton into yarn added $3 of value to it when he sold it for $3

Person who converted into a hat and sold it for $10 he put $7 value added into it

$3 plus $7 = $10 GDP

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are the things that don’t count in GDP

A
  1. intermediate goods
  2. used goods
  3. financial transactions
  4. Gov transfer payments
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Explain why intermediate goods don’t count in GDP

A

used to produce final good

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Explain why used goods don’t count in GDP

A

things were produced in pervious years

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Explain why financial transactions don’t count in GDP

A

nothing new is produced (stocks or bonds)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Explain why gov transfer payments don’t count in GDP

A

add

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is the product market (in circular flow diagram) include

A

Businesses and households

22
Q

Explain the product market

A

businesses sell goods and services to households in the Product market

23
Q

Where is a product market

A

anywhere you can buy stuff

24
Q

What is the Resource Market (in circular flow diagram) include

A

Businesess and households

25
Q

What is the Resource Market

A

businesses need resources like workers and machines

26
Q

What are the 4 categories of resources

A
  1. land - natural resources
  2. labour
  3. capital - tools and machines
  4. entrepreneurship
27
Q

If you sell land you

A

earn rent

28
Q

if you sell labour you

A

earn wages

29
Q

For capital you get

A

gets interest

30
Q

Entrepreneurship you get

A

profit

31
Q

is your local mall a product market or a resource market

A

Both:

Product market - buy things, profit

Resource market - working, earning wages

32
Q

do businesses demand or supply

A

BOTH

Demand - in resource market

Supply - in product market

33
Q

Explain the government’s role in the circular flow diagram

A

buys goods and services form businesses in the product market (ie fire trucks )

they pay for them (gov. spending)

They also buy resources form resource market like teachers and firefighters

34
Q

What are transfer payments

A

public goods to households and businesses

Subsidies: to businesses
welfare to households

35
Q

Explain taxes in the circular flow diagram

A

this is how the gov. receives their money

from businesses and households

36
Q

Which approaches to calculating GDP are seen on the circular flow diagram

A

income approach and the expenditure approach

37
Q

Financial sector of the circular flow diagram: explain private savings

A

savings by individual households

38
Q

Financial sector of the circular flow diagram: explain public savings

A

savings by the gov. how its lent to businesses and individuals in th gov. to make purchases

39
Q

No $ (great depression)

A

no savings
no lending
no spending
= economy will shrivel up

40
Q

Wha tis the closed economy include

A

Consumer spending
business spending or investment
Gov. spending

C I G

41
Q

Every economy has 3 economic goals , what are they

A
  1. Economic Growth
  2. Limit unemployment
  3. keep prices stable
42
Q

What is the most important measurement

A

GDP

43
Q

What are the limits of GDP

A

Its not the best way to measure standard of living

44
Q

Why is GDP not the best way to measure the standard of living

A

its hard to gauge a family’s standard of living by calculating the # of pies they can produce

depends on how many people are in the the family, the size of each lice and the quality and taste of the pie

45
Q

What are the limitations:

A

PIES

P - population
I - Inequality
E - environment
S - Shadow economy

46
Q

Explain Population as it relates to the limits of GDP and what is the fix

A

some countries are bigger and have to disperse the GDP over more people

Fix: calculate GDP per capita

47
Q

Explain Inequality as it relates to the limits of GDP and what is the fix

A

all households in the country do not have the same standard of living

Depends on how income is distributed

48
Q

Explain Environment as it relates to the limits of GDP and what is the fix

A

no way to calculate the benefits of clean air, clean water or pollution form production (subjective, hard to value)

49
Q

Explain Shadow Economy as it relates to the limits of GDP and what is the fix

A

you buy a pie from a store, that counts toward GDP

If you buy it from a friend, it does not count toward GDP

Doesn’t include volunteer work or household production or illegal transactions

50
Q

How do we deal with GDP limitations

A
  1. some suggested using different ways to calcualte such as the happiness index or the GPI (genune progress indicator)
    - this can still be subjective and hard to calculate
51
Q
A

1.c2ME Class 2 - 2024-2025 (10 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions