Lecture 1: Introduction

Question 1

What is macroeconomics?

Answer 1

the study of the economy as a whole

Question 2

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

Answer 2

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

Question 3

What 2 things does GDP measure?

Answer 3

• the total income of everyone in the economy

- the total expenditure on the economy’s output of goods and services

Question 4

For the economy as a whole, income must equal

Answer 4

expenditure

Question 5

What are the two ways we can compute GDP?

Answer 5

1. adding up total income (wages, rent, profit)

2. adding up total expenditure by households

Question 6

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

Answer 6

income

Question 7

Define GDP

Answer 7

The market value of all final goods and services produced within a country in a given time period

Question 8

What is meant by the “market value” of goods and services?

Answer 8

GDP adds together may different types of products using market price to crease a common unit of account for each good

Question 9

What is meant by “all final goods and services” in the definition of GDP? Give an example

Answer 9

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

Question 10

What is meant by “produced” in the definition for GDP?

Answer 10

GDP only includes goods currently being produced and doesn’t count the sale of the goods to another person

Question 11

What is meant by “within a country” in the definition of GDP?

Answer 11

Items are included in a nation’s GDP if they are produced domestically, regardless of the nationality of the producer

Question 12

What is meant by “in a given time period” in the definition of GDP?

Answer 12

it measures the value of production that takes place within a specific interval of time usually a year or 3 months

Question 13

As well as GDP, another measure of income is GNP. What is this?

Answer 13

Gross National Income (GNI): the total income earned by a nation’s permanent residents

Question 14

How does GNP differ from GDP?

Answer 14

it differs because it includes the income that NZers can earn abroad and excludes the time that foreign nationals earn in NZ

Question 15

What is the net factor income from abroad?

Answer 15

This is difference between the income earned by New Zealanders in foreign countries and that paid to foreigners for their contribution to GDP

Question 16

Define Gross national disposable income (GNDI)

Answer 16

GNP plus net current transfers from the rest of the world

Question 17

Define transfers

Answer 17

payments made that are not in exchange for any currently produced good or service

Question 18

What are the four components of GDP in the expenditure approach?

Answer 18

• consumption
• investment
• government purchases
• net exports

Question 19

What is the equation for GDP under the expenditure approach?

Answer 19

Y (GDP) = C + I + G + NX

Question 20

Define consumption

Answer 20

spending by households on goods and services, except the purchase of new housing

Question 21

Define investment

Answer 21

The purchase of goods (such as capital equipment and inventories) that will be used in the future to produce other goods and services

Question 22

Define government purchases

Answer 22

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

Question 23

Define inventories

Answer 23

stuff that you plan to hold as part of normal production plans

Question 24

Why does government purchases component of GDP not include transfer payments

Answer 24

because these payments do not reflect an economy’s production

Question 25

Define net exports

Answer 25

The purchase of domestically produced goods by foreigners (exports) minus the domestic purchases of foreign goods (imports)

Question 26

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

Answer 26

are not
added
domestically

Question 27

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

Answer 27

are
subtracted
domestically

Question 28

GNP is equal to _______ plus net factor income from abroad (NFIA) so what is the equation for GNP?

Answer 28

GDP

GNP = GDP + NFIA

Question 29

GNDI is equal to _____ plus net current transfers (NCT) so therefore the equation for GNDI is..?

Answer 29

GNP

GNDI = GNP + NCT

Question 30

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?

Answer 30

GNDI = GDP + NFI

Question 31

Define net foreign income

Answer 31

income coming into the economy (minus the incoming going out of the economy)