Macro-Economics Flashcards
Definition of GDP
Gross domestic product (GDP) is the total value of all final products and services produced in a country over a period of time.
Method of calculating GDP
- Expenditure approach
GDP = C + I + G + (X-M)
C = Consumption spending
I = Business/private investment
G = Government purchase
X = Export
M = Import - Income approach
GDP = NI + IBT+ D
NI = the sum of all salary, rent, interest, and profit
IBT = Indirect Business Taxes D = Depreciation
GDP (Expenditure method) = GDP (Income method)
5 đặc điểm phân biệt Nominal GDP vs Real GDP
- Meaning:
Nominal GDP is sum-total of economic output produced in a year valued at current market price
Real GDP is sum – total of economic output produced in a year valued at a pre - determined base price market - Expressed in:
Nominal GDP: Current market price
Real GDP: Base year’s market price - Uses:
Nominal GDP: Can be compared with various quarters of the given year
Real GDP: Can be compared with two or more financial years - Economic growth:
Nominal GDP: Economic growth can’t be analysed easily
Real GDP: Real GDP is a good indicator of economic growth - Effect of Inflation:
Nominal GDP: doesn’t take inflation into account
Real GDP is a Inflation- Adjusted GDP
Economic growth definition
Economic growth is measured by the percentage change in real output (usually real GDP) for a country.
What factors determine GDP growth?
Growth of the labour force: Represent the increase in labour force in the market
Productivity gains: Represent growth in output per unit of labour
Availability of capital: Represents inputs other than labour necessary for production
How many states in The Business (or Economic) Cycle? What are they?
- Peak:
* Economic growth: highest and begins to slow
* Inflation: further accelerates
→ Central banks may implement policies to slow the economy and control inflation. - Contraction:
* The economy as a whole is in decline
* Inflation and interest rates: tend to fall
* Unemployment rate becomes higher, lower
wages due to the decrease in productivity - Trough:
* Economic growth: lowest
* Inflation and interest rate: low
→encourage more borrowing to finance spending →economic growth rate begins to improve - Recovery:
* The economic growth rate begins to improve and the economy rebounds.
* GDP grows, incomes rise, and unemployment falls - Expansion:
* Growth accelerates
* Inflation and interest rate: increase
* Unemployment rate decrease as hiring accelerates
Economic Indicators definition
Economic indicators are measures that offer insight regarding economic activity and are reported with greater frequency than GDP.
Usages of economic indicators?
- Guide forecasts of future economic activity
- Forecast of activity and performance in the financial markets and exchange rates
3 types of economic indicators? What are they?
- Lagging indicators (Chỉ số sau):
Signal a change in economic activity after output has already changed.
Ex: Employment rate tends to fall after economic activity has declined - Coincidents indicators (Chỉ số trùng):
Reveal current economic conditions, but do not have predictive value.
Ex: Industrial production and personal income statistics - Leading indicators (Chỉ số trước):
Signal changes in the economy in the future.
Ex: The stock & housing markets, consumer confidence.
Inflation definition
Inflation is the decline of purchasing power of a given currency over time.
The rise in the level of prices, means that a unit of currency can buy less than it did in prior periods.
How inflation happens?
- The Monetary Authority prints more money to pay for the country’s spending
- Increase in the money supply
- There is more money chasing the same number of goods
- The prices of goods increase
