key economic indicators Flashcards
what is macroecons
- focuses on the aggregation of prices and output levels of all goods and services produced in all markets in an economy
- concerned with general price level and real national income/total production and consumption of goods and services
macroeconomic conditions of an economy
- living standards
- economic performance
- econ growth
- price stability
- unemployment
- favourable balance of trade
economic growth definition
an increase in the real gross domestic product (GDP)
how to achieve sustained econ growth
- Actual growth (increase in national output actually produced for a given period of time, commonly measured by the percentage increase in real GDP)
- Potential growth (increase in the productive capacity of the economy for a given period of time. an increase in quantity or quality of resources will contribute to potential economic growth)
graph 1
3 ways to measure economic growth
National product = national income = national expenditure
- value of goods and services is equal to the amount that buyers must spend to purchase them
- what the seller receives equals what the buyers spend (the sellers receipts in turn equal the total income generated by the economic activity and returns to factors of production (rent, wages, profit etc.) hence total expenditure = total income generated)
- gives economists alternative methods of measuring economic growth by one of the 3 methods
What is GDP and what is it used for
Definition: value of all final goods and services produced within the geographical boundary of a country over a given period of time, reflects actual growth only
Uses:
- measuring econ growth
- indicating living standards
- comparing between countries
- reflecting econ environment of country
- comparing changes in GDP across time to look at econ growth rates (use real GDP for this to ensure GDP is calculated at constant prices for comparison)
What is nominal GDP and how to calculate
Definition: value of the final goods and services produced in a given year expressed in terms of the prices in the same year
Nominal GDP = Price (current year) x Quantity (current year)
What is Real GDP and how to calculate + uses
Definition: value of final goods and services produced in a given year expressed in terms of the prices in a base year (real GDP can have multiple names)
Real GDP = Price (base year) x Quantity (current year)
- helps to adjust for inflation using price of base year
- measures real change in production levels
- eliminate effect of inflation on GDP
Just read (Real GDP)
- emerging economies tend to have lower real GDP values but higher growth rates compared to developed economies because many of their resources are still unemployed/underemployed, therefore the actual production levels are low
- however the availability of these idle resources allow emerging economies to increase production quickly when they experience rising aggregate demand
- in developed economies, production levels are high but further growth in production is difficult due to the lack of spare capacity when its resources are almost fully utilised
Gross national income (GNI)
Definition: value of all final output of goods and services produced by nationally owned factors of production during a given period of time
What is domestic production vs national production
Domestic prod: Refers to production within a country’s geographical boundaries regardless of the origin of the factors of production
- Eg. G&S produced by foreign multinational companies located in SG will contribute to GDP but not GNI
National prod: Refers to production from factors pf production owned by citizens of a country regardless of the country in which production occurs
- Eg. monetary value of all final G&S produced by Singaporean firms based abroad will contribute to GNI but not GDP
Relationship between GDP and GNI
GNI = GDP + NFIA (net factor income from abroad = income flowing out of SG to a foreign country)
What is NFIA
- Net factor income from abroad
- difference between the income that locally owned residents or firms have received from abroad and the income claimed by non residents based locally
- helps to compare the GDP and GNI in order to indicate the extent to which a country’s national income is derived from abroad
Why is GNI a more accurate reflection of consumption levels
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Why is GDP used more frequently
- the incomes earned by local factors are more likely to be spent in the domestic economy
- the incomes reflected in GDP are foreign owned and are less likely to contribute to domestic consumption
- better reflects the econ environment of a country
- helps investors decide on whether to invest in a country since it reflects the quantity and quality of resources physically available in the country and the state of tech achieved
Limitations of GDP/GNI
- Presence of non market activities
- refers to the prod. of G&S that are not bought and sold in a market
- no transactions that record the price of the good that reflects the value of prod. (eg. housework vs paying a home cleaner)
- GDP/GNI excludes the value of such non market activities
- especially in developing countries where people commonly trade services without exchanging money or are self sufficient through farming hence the amount of G&S produced may be UNDERESTIMATED as many prod. activities are non marketed - Presence of underground economy
- unreported transactions, incl. illegal (dealing of drugs) and legal (private home tuition) activities
- better communication tech allow transactions to occur informally such that production is unrecorded
- sale of productions dont have to occur in govt. licensed shops making it hard to assess the total level of production in the formal and underground economy
Sustainable growth (just read)
Definition: rate of economic growth that can be maintained without creating other significant econ. problems such as depleted resources and environmental problems (intergenerational welfare)
- if rapid growth is achieved via industrialisation and urbanisation the country’s resources could be depleted, leaving future generations with less
- high prod. levels arising from industrialisation could generate sig. amount of emissions and negative externalities
