L2 - Measuring Economic Activity Flashcards
What is national accounting? Who is responsible in the UK?
Measures state of an economy at a given time, changes to an economy over time, differences across countries. Office of National Statistics (ONS)
Explain two production approaches to GDP and why they are equivalent
Value added, value of final goods.
Give one definition of GDP
Total market value of domestically-produced final goods and services over a given period
Explain briefly why production = expenditure = income
In every transaction the buyer’s expenditure becomes the seller’s income
Define a firm’s ‘value added’
the value of its outputs minus the value of the intermediate goods the firm uses to produce that good
State the National Income Accounting Identity. What does it relate to?
Y = C + I + G + NX C = Consumption I = Investment G = Government spending NX = Net exports
Define Consumption (C).
The value of all goods and services bought by households.
Define Investment (I).
Spending on capital/spending on goods bought for future use.
Define gross fixed investment. What can it be known as?
Business + residential fixed investment. Gross Fixed Capital Formation (GFCF).
Define Gross Capital Formation. What can it be known as?
GFCF + Inventory changes. Investment.
Define Government spending (G). What does G exclude and why?
G includes all government spending on goods and services. It excludes transfer payments (eg unemployment payments) as they don’t represent spending on G/S.
Define Net Exports (NX).
The value of total exports (EX) minus the value of total imports (IM).
NX = EX - IM
Explain stock vs flow.
Stock - quantity measured at a point in time.
Flow - quantity measured per unit time.
Define capital.
Inputs into production other than labour that are not used up in the production process.
Define depreciation.
The deterioration of the capital stock due to wear and tear.
What is Net Domestic Product (NDP)?
GDP - Depreciation.
What are some important economic components not included in GDP?
Home production, goods or services transacted outside markets, used good transactions, housing services, government transfer payments to individuals.
What does GDP not take into account?
A measure of well-being of a nations people, changes in environmental resources, inequality.
What is the difference between nominal and real GDP?
Nominal GDP uses current prices, real GDP is an inflation-adjusted measure.
What is a GDP deflator?
The ratio of Nominal GDP/Real GDP (using a base year).
What is are the Laspeyres, Paasche and Fisher indices?
Laspeyres - changes in R-GDP using initial year prices.
Paasche - changes in R-GDP using final year prices.
Fisher - average L/P indices over a given period
Define inflation rate.
Rate at which prices change over time.
Explain two common measures of inflation.
GDP deflator value. Consumer Price Index (CPI) - measures the prices of a typical ‘consumption basket’ of goods.
How do you compare GDPs of different countries?
Adjust N-GDPs to express in common currency, adjust by GDP deflators from common year.
