GDP Flashcards
Define unemployment
When people are willing and able to work but are unable to find a job.
Balance of payments definition
A record if the money flows into and out of a country in a year.
Exchange rate definition
The price of a currency expressed in terms of a foreign currency.
Economic growth
An expansion the productive capacity of the economy and hence an increase in real national output.
Inflation definition
A sustained rise in the general price level.
Gross domestic product GDP
The value of total output produced in a country in a year.
Income redistribution
The transfer of income from rich to poor to ensure everyone have access to necessities.
Economic stability
Avoiding volatilising in economic growth rates, inflation, employment and exchange rates. (Avoiding boom/busy with a stable economic cycle).
Richest countries top 5
- United States
- China
- Japan
- Germany
- United Kingdom
Objectives of governments
Economic growth Inflation Employment / Unemployment Economic stability Income redistribution The balance of payments
Three ways country measures GDP
Income method
Expenditure method
Output method
Income method definition
Add up all the factor incomes earned in the country in a year.
Expenditure method
Definition
Add up all the spending on goods produced in the economy in a year.
Output method
Definition
Add up the total value added or final value of goods and services produced a year.
Value added meaning
The selling price of a good minus the cost of raw materials
Sectors of the macro-economy
Households
Firms
Government
International sector
Circular flow of income
Define
A model of the movements of spending and income throughout the economy, which shows the impact of injections and withdrawals on real GDP.
Leakages
Savings
Taxation
Imports
Injections
Government spending
Investment
Exports
Factor incomes
Rent
Wage
Profit
Dividends
Factor services
Capital
Enterprise
Land
Labour
Leakages/withdrawals define
Withdrawals of possible spending from the circular flow of income.
Injections define
Additions of extra spending into circular flow of income.
Injections > leakages
GPD will increase
Injections = leakages
GPD will stay equal / stay constant
Injections
GPD will decrease
Define average propensity to consume
The proportion of disposable income spent in an economy. It is consumer expenditure divided by disposable income.
Average propensity to save
The proportion of disposable income saved in an economy. It is savings divided by disposable income.
Marginal propensity to consume
The proportion of an increase in disposable income that households would devote to consumer expenditure.
Marginal propensity to save
Define
The proportion of an increase in disposable income that households would devote to saving.
What is the multiplier effect?
The process by which any change in a component of aggregate demand results in a greater final change in real GDP.
Multiplier
Multiplier = K = 1 / MPW
The size of the multiplier depends on
Marginal propensity savings
Marginal propensity taxation
Marginal propensity import
Marginal propensity savings define
The proportion of additional income that is saved by households
Marginal propensity taxation define
The proportion of additional income that is taxed
Marginal propensity import
The proportion of additional income that is spend on imports of goods and services.
