key definitions Flashcards
What does Gross Domestic Product (GDP) measure?
Measures the total value of all output in the economy over a period of time.
GDP is a key indicator of a nation’s economic health.
How is Gross National Income (GNI) calculated?
GDP + income residents have received from abroad (in the form of interest, rent, profits or dividends) - income leaving the country.
GNI reflects the total income earned by a nation’s residents.
What is Real GDP per capita?
Nominal GDP adjusted for inflation.
It provides a more accurate representation of economic performance per person.
Define Economic Growth.
The increase in the value of the goods and services produced by an economy over a period of time.
It is measured as the percentage rate of change in real GDP.
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What is a Recession?
A fall in the value of the goods and services produced by an economy over a period of at least 6 months, measured by a decrease of real GDP for two consecutive quarters.
Recessions can lead to increased unemployment and reduced consumer spending.
What is Purchasing Power Parity (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.
PPP is used to compare economic productivity and standards of living between countries.
What is the Standard of living?
The amount of goods and services that households have access to, measuring material welfare.
What is the Shadow economy?
Refers to illegal or underground networks where goods, services, or activities are traded outside the boundaries of official regulations, taxation, and oversight.
The shadow economy can impact government revenues and economic statistics.
What does the Kuznets curve suggest?
Economic inequality tends to increase during the early stages of economic development, but then decreases as a country becomes more developed.
This theory highlights the relationship between economic growth and income distribution.
What does the Environmental Kuznets curve indicate?
Environmental pollution tends to increase as a country’s income increases during the early stages of economic development, but then decreases as a country becomes more developed.
It suggests a turning point where economic growth leads to better environmental standards.
What is the Trade cycle?
Shows how GDP changes over time, including phases of growth and contraction.
Understanding the trade cycle is essential for economic policy-making.
Define Boom in the context of the trade cycle.
In the trade cycle, where there is rapid GDP growth.
Booms can lead to inflation if the economy overheats.
What is an Output gap?
The difference between actual and potential output in an economy.
A positive output gap indicates an economy is exceeding its potential.
What is a Negative output gap?
When GDP falls below its potential level leaving spare capacity in the economy.
This often leads to higher unemployment and lower inflation.
What is a Positive output gap?
When GDP is above potential output or when nominal GDP continues to grow despite the economy being at full capacity.
This can lead to inflationary pressures.
What is National wellbeing?
A multi-dimensional concept that provides a more comprehensive measure of living standards and quality of life than GDP alone.
What is the Easterlin Paradox?
Research in the 1970s stating life satisfaction rises with average incomes but only up to a point; beyond that point, the marginal gain in happiness declines.
This suggests that income is not the only factor influencing happiness.
