Lecture 1: Introduction Flashcards
What is macroeconomics?
the study of the economy as a whole
Define the economy
the economic __________ of an ______, it’s _______, ________ and _______ resources, and the behaviour of the economic agents that participate in the p________, e__________, d________ and c_________ of the goods and services in that area
the economic system of an area, it’s land, capital and labour resources, and the behaviour of the economic agents that participate in the production, exchange, distribution ad consumption of the goods and services in that area
What 2 things does GDP measure?
- the total income of everyone in the economy
- the total expenditure on the economy’s output of goods and services
For the economy as a whole, income must equal
expenditure
What are the two ways we can compute GDP?
- adding up total income (wages, rent, profit)
2. adding up total expenditure by households
Every transaction has a buyer and a seller in the circular flow diagram and therefore, for the economy as a whole, expenditure and __________ are always the same
income
Define GDP
The market value of all final goods and services produced within a country in a given time period
What is meant by the “market value” of goods and services?
GDP adds together may different types of products using market price to crease a common unit of account for each good
What is meant by “all final goods and services” in the definition of GDP? Give an example
When a firm sells steel to Fisher & Paykel to make a dishwasher, the steel is called an intermediate good and the dishwasher is called a final good/ GDP only includes final goods, including the value of all goods would result in (incorrectly) double counting the steel
What is meant by “produced” in the definition for GDP?
GDP only includes goods currently being produced and doesn’t count the sale of the goods to another person
What is meant by “within a country” in the definition of GDP?
Items are included in a nation’s GDP if they are produced domestically, regardless of the nationality of the producer
What is meant by “in a given time period” in the definition of GDP?
it measures the value of production that takes place within a specific interval of time usually a year or 3 months
As well as GDP, another measure of income is GNP. What is this?
Gross National Income (GNI): the total income earned by a nation’s permanent residents
How does GNP differ from GDP?
it differs because it includes the income that NZers can earn abroad and excludes the time that foreign nationals earn in NZ
What is the net factor income from abroad?
This is difference between the income earned by New Zealanders in foreign countries and that paid to foreigners for their contribution to GDP
Define Gross national disposable income (GNDI)
GNP plus net current transfers from the rest of the world
Define transfers
payments made that are not in exchange for any currently produced good or service
What are the four components of GDP in the expenditure approach?
- consumption
- investment
- government purchases
- net exports
What is the equation for GDP under the expenditure approach?
Y (GDP) = C + I + G + NX
Define consumption
spending by households on goods and services, except the purchase of new housing
Define investment
The purchase of goods (such as capital equipment and inventories) that will be used in the future to produce other goods and services
Define government purchases
Spending on goods and services by local and central governments. It includes the salaries of government employees and government workers but does not include transfer payments
Define inventories
stuff that you plan to hold as part of normal production plans
Why does government purchases component of GDP not include transfer payments
because these payments do not reflect an economy’s production
Define net exports
The purchase of domestically produced goods by foreigners (exports) minus the domestic purchases of foreign goods (imports)
Exports are/are not included in C, I or G so they must be added/subtracted to the equation determining the value of the goods produced domestically/internationally
are not
added
domestically
Imports are/are not included in C, I and G so they must be added/subtracted from the equation determining the value of goods produced domestically/internationally
are
subtracted
domestically
GNP is equal to _______ plus net factor income from abroad (NFIA) so what is the equation for GNP?
GDP
GNP = GDP + NFIA
GNDI is equal to _____ plus net current transfers (NCT) so therefore the equation for GNDI is..?
GNP
GNDI = GNP + NCT
Net foreign income (NFI) is the net factor income from abroad (NFIA) + net current transfers (NCT). Using this expression, what is the equation for GNDI?
GNDI = GDP + NFI
Define net foreign income
income coming into the economy (minus the incoming going out of the economy)
