Economics theme 2 Flashcards
What is GDP?
Sum of all goods and services produced in an economy over a period of time.
What is Economic growth?
Value of the percentage change in GDP
What is short term economic growth?
Annual percentage change in real national output
What is long term economic growth?
Long term expansion of productive potential of an economy
What word is used when GDP drops for two quarters?
Recession
What is the formula for percentage change?
(new value-old value)
—————————— x 100
old value
What is nominal GDP?
Value of goods and services produced in the economy over a period of time (current prices)
What is real GDP?
Value of goods and services produced in the economy over a period of time taking into account inflation (real values)
Whats the formula for real national output?
nominal national output
———————————– x 100
average price level
What is total national income?
The value of all goods and services produced in a country in a given year
What is per capita income?
Total income divided by the number of people in a country
What is gross national product (GNP)?
Value of all goods and services produced by domestic businesses
What is volume?
The quantity of goods and services produced in a country .
What does gross national income (GNI) measure?
Measures income received by a country both domestically and from assets/activities/net property income abroad
What is value?
Looks at the monetary worth of the goods and services produced in a country
What is Purchasing Power Parties (PPP)?
The rate at which the currency of one country would have to be converted into that of another country to buy the same amount of goods and services in each country
Comparison between countries taking into account different cost of living
What is inflation?
The sustained increase in the cost of living / fall in the purchasing power of money
What is disinflation?
Fall in the rate of inflation
What is deflation?
Decline in the general price level in an economy signified by an annual inflation rate below 0% (negative)
What is inflation measured in?
CPI
What are the limitations of CPI
- CPI is not fully representative (inaccurate for ‘non typical’ household
- Spending patterns (everyone will spend different amounts of money e.g single person from a family with two children)
- Changing quality of goods and services ( price may rise as the quality of the good or service is being improved)
- New products( CPI is slow to respond)
- Substitutes (cheaper alternative)
- Shocks ( shocks cause temporary price change)
