How Is Economic Activity Measured Flashcards
What are the five main macroeconomic goals?
- Economic Growth
- Low Unemployment
- Stable inflation
- Fair distribution of income
- Balance of trade
Define gross domestic product
The total value of all final goods and services produced within an economy over a period of time
What are the 3 ways to calculate GDP?
- Output Approach
- Expenditure approach
- Income approach
What is the output approach?
Adds up the values of all the final goods and services produced by each economic sector
What is the expenditure approach?
Measure total amount spent on domestically produced final goods and services.
GDP= C+ I+G+ (X-M)
What is the income approach?
Adds up all the income generated in the production process and by the factors of production in the economy.
GDP= rents + wages+ interest+ profits
What is Gross National Income?
GNI focuses on the nationality of the factors of production involved and the incomes they earn, independently of their location so that GNI= GDP + (factor income from abroad- factor income)
Define Real GDP
GDP measured in constant prices so that the effect of inflation or deflation is isolated
Define Real GNI
GNI measured in constant prices so that the effect of inflation or deflation is isolated
What is nominal GDP?
The value of output of a certain period is valued using the prices that prevailed at that period.
How do you calculate GDP deflator?
GDP deflator= nominal GDP/ real GDP *100
What is a GDP deflator?
A comprehensive price index that measures the average level of all goods and services included in the GDP of a country
How do you get per capita figures?
Divide GDP/GNI by the population
What are the arguments in favour of using per capita income as a measure of living standards?
If it is higher it implies that people command more output on average and access to more output is considered better than access to less output
What are arguments against using per capita income as a measure of living standards?
- Does NOT provide information about the distribution of income in a country
- Per capita income ruses when production levels are rising which may concur a huge cost to the environment
- Does not include the value of leisure
- Living standards are not only affected by current income but also by the stock of wealth of the population
- Kevel of public health and public education available to citizens may differ between two countries with the same per capita income–> affects living standards
- It fails to reveal the composition of output
Illustrate the business cycle
