GDP: Measuring Total Production, Income and Economic Growth Flashcards
What is Microeconomics?
How households and firms make choices, how they interact in markets, and how government intervention influences market outcomes
What is Macroeconomics
How national and international economy operates.
The short term fluctuations and long term economic growth.
The impact of government policies on the economy
What are two key policies that can achieve macroeconomic goals?
Monetary policy and Fiscal policy
What does the monetary policy control?
price stability
What does the fiscal policy control?
keeps the economy on track
and smooths out business cycles.
What is the importance of international trade?
It is a vehicle for growth and prosperity (free trade)
What does GDP stand for?
Gross domestic product
What does GDP measure
market value of all final goods and services produced in a country during a period of time
How is GDP measured
GDP is measured using market values and not quantities
What does GDP account for/?
GDP only accounts for the final goods and services and not inputs on other goods.
What production does GDP include for.
GDP only accounts for current production which takes place during an indicated time period and does account for second hand goods.
When calculating GDP for a simple economy what are you finding?
The sum of the value of final goods and services.
Say your shop sells sunnies (1000 pairs), sunscreen (500 units) and togs (100 pairs). the prices are $20, $10 and 80 respectively. What is the total GDP?
= 20,000+5000+8000
= Total (GDP) = 33,000
Firm output value Cost
Farmer wheat $100 0
Flower mill flour $160 100
Bakery Bread $300 150
What is the Value added and what is the GDP?
GDP = Sum of the value added by each firm
= 100+60+140
=$300
What are the approaches to measuring GDP?
- Production approach
- Expenditure approach
- Income approach
What is the production approach when measuring GDP?
sum of the value of all goods and services produced by industries in the economy in a year minus the cost of goods and services used in the production process, leaving the value added by the industries
What is the expenditure approach when measuring GDP?
sum of the total expenditure on goods and services by households, investors, government and net exports
What is the income approach when measuring GDP?
sum of the income generated in the production of goods and services, which includes profits, wages and other employee payments, income from rent and interest earned
what does each letter mean in the GDP formula?
GDP = Y = C + I + G +NX
- (C) Consumption: spending by households on goods and services, not including spending on new houses
- (I) Investment: spending by firms on capital goods and inventories, and spending by households on new houses
- (G) Government purchases: spending by federal governments on goods and services
- (NX) Net exports: net purchases of Australian output by overseas countries
What does NDP stand for
Net Domestic Product
What is NDP?
calculated by measuring GDP and subtracting the value of depreciation on capital equipment and prevents GDP from falling
what does GNI stand for
Gross national income
What is GNI?
Australia’s GDP plus income generated overseas by Australian residents and firms, minus the income generated in Australia by non-residents and foreign firms. Helps to show the economic strength of citizens of a country.
What is the difference between real GDP and nominal GDP?
Real GDP is the total, nominal quantity x by the real unit price for each product
Nominal GDP is the total, nominal quantity by the nominal unit price for each product
What does the GDP deflator do?
keeping prices stable is the economic goal. It measures the price level
What is the formula for the GDP deflator?
practice pg 9 of notes
GDP deflator
= Nominal GDP/ Real GDP x100
what is the economic growth rate formula?
Economic growth rate
= (Total GDP deflator - base year total)/base year total x 100
= (answer)%
What is long run economic growth?
Process by which rising productivity increases the average standard of living
What determines long run economic growth?
- increase in real GDP
- Quantity of goods and services that can be produced by one worker
- Increase in capital per hour (human capital/capital)
- Technological improvement
What determines how fast economics grow?
economic growth depend on increases in labour productivity
