macro Flashcards
What are the five macro goals?
- Price stability
- Reduction in unemployment
- Adequate economic growth
- Reduction in income inequalities
- External equilibrium
What does price stability mean?
No inflation or deflation.
Prices do not go up too much or down too much
Why would they want reduction in unemployment?
To maximise productivity
What is adequate economic growth?
Growth is needed to provide jobs
What is the perfect amount of growth rate?
There is no perfect one, it really depends
What does external equilibrium incorporate?
- Trade relations between countries
2. Buying, selling, flow of capital and income
What do national income accounts do?
- Tell you the state of the economy
- Allow you to compare past and present states of the economy
- Allow you to compare performances between countries
- Allow governments/businesses/economists to predict where the economy is headed
- Allow you to see changes in consumption, investment and government spending.
What are the types of national income accounts?
- Gross Domestic Product
- Gross National Product/Income
- Net National Product
- National Income
- Personal Income
- Personal Disposable Income
- Personal Savings
What is Gross Domestic Product?
The monetary value of all final goods and services produced in a country over a period of time (usually a year)
Guidelines of GDP
- Every product and service has to be monetized
* Final goods - no double counting
What is GDP used for?
Used to measure the well-being of the economy
How to calculate GNP/GNI?
GDP + net income from abroad
What is net income?
Returns from investment or working in different countries (what people sent to residents of different countries)
What is Net National Product
GNP - Depreciation
What is Depreciation?
Depreciation is the money you use to replace worn out stuff
What is National Income?
NNP - Indirect Business taxes
What is personal income?
NI - (corporate income taxes + undistributed corporate profits + social security payments) + (dividends + transfer payments).
What is corporate income tax?
tax paid for each something
What are undistributed corporate profits?
Money they don’t share with investors and shareholders
What are dividends?
What you receive as a shareholder or stockholder
What are transfer payments?
What you get from social security
What is personal disposable income?
Personal Income - personal income (direct) taxes
What are personal savings?
PDI - Personal consumption
What are the three ways to calculate GDP?
- Output Approach
- Expenditures Approach
- Incomes Approach
What is the output approach?
- Add all value addeds together
What is value added?
The price you bought the good for - the price you sold it for
What are the three sectors?
- Primary sector - agriculture
- Secondary sector - Industry
- Tertiary sector - services
What is the expenditures approach?
Add different expenditures together:
C + G + I + (exports - imports)
What is C?
Personal Consumption Expenditures
What is I?
Investment expenditures (buying to invest in business)
What is G?
Government expenditures at all levels
What is the incomes approach to calculating GDP?
Add all the incomes generated from production of goods and services
How do you calculate all the incomes?
Wages/salaries + interest + rent + profit + depreciation + indirect business taxes
Limitations of GDP?
- Statistics can be inaccurate or incomplete
- Illegal activities are not included
- Unreported/black markets are not included
- Non-market transactions are not included
- Economic bads or negative externalities are not included
- Volunteerism not included
- Value of leisure is not included
- Value of government not included
- Composition of GDP is not shared
- Improvements in quality are not considered
- Quality of the factors are not included
- Does not indicate income distribution
What are non market transactions?
Transactions covering goods or services that their producers supply for free or at prices that are not economically significant, usually due to a relationship between producer and consumer
(Things like housework by parents or siblings babysitting for other siblings or a friend giving a friend a check up)
What are alternative for measuring well-being?
- Gross National Happiness
- Index of Sustainable Economic Well being
- Genuine Progress Indicator
- Human Development Index
- Green GDP
- Better Life Index
- Legatum Prosperity Index
What does Gross National Happiness measure?
The prosperity of a country
How does Gross National Happiness measure the prosperity of a country?
It looks at spiritual, physical, social wellbeing of people and the environment
What are the top three countries in terms of Gross National Happiness?
- Denmark
- Norway
- Switzerland
Is there a correlation between Gross National Happiness and GDP?
No. Bhutan for example has a high GNH but a very low GDP.
What is the index of sustainable economic well-being?
calculates GDP, unpaid household labour, social costs, health and education, environmental damages and income distribution
What are the top 3 countries in terms of Index of Sustainable Economic Well being?
- USA
- UK
- Germany
What does the Index of Sustainable Economic Well being explain?
It explains why population increase doesn’t equate to increasing welfare
What does the Genuine Progress Indicator measure?
The GDP that accounts for social and environmental costs and benefits
How do you measure Genuine Progress Indicator?
GPI = A + B - C - D + I
What is A?
A: Income weighted consumption
What is B?
B: Value of non-market services that generated welfare
What is C?
C: Private defensive cost of natural deterioration
What is D?
D: Cost of deterioration of native
What is I?
I: Increase in capital stock and the balance of international trade
What is the Human Development index?
It is under the UN development programme, a composite of indeces supposed to quantify human development
What are the top countries in terms of the human development index?
- Norway
- Iceland
- Australia
What is Green GDP?
A GDP that takes into account economic growth with the environmental consequences
How do you calculate Green GDP?
Monetises the loss of biodiversity, accounts for climate change related costs
What countries have the top Green GDP?
- Germany
- US
- Denmark
What are the limitations of Green GDP?
Can only take into account private resources
