MACRO-inro Flashcards
What is macroeconomics?
the study of the economy as a system, not focusing on individual details, to instead look at the interaction of broad sectors
Investment definition
is the purchase of new capital goods by firms
Saving definition
is the part of income not spent buying goods and services
What is the circular flow of income?
We have households that provide factors of production to firms. (Land, labour, capital)
Firms use the factors to make goods and services,
They give pay households for these factors of production. (Rent, wages, profit respectively)
Households then spend these rewards on goods and services from firms.
What is a leakage from the circular flow of income?
payment from firms to households that do not automatically return to firms (through spending on the firms output)
savings, imports, taxation
Money can go out of the economy, and not be spent on goods and services produced in the economy.
What is an injection from the circular flow of income?
Money that flows to firms without being households spending e.g. foreigners buying our products (exports), government spending, investment (firms buying capital goods)
What is the output method of measuring GDP?
Adding up the final value of all goods and services produced within a year
Income method of measuring GDP?
Adding up all factor incomes (wages, rent, interest, profit)
Expenditure method of measuring GDP?
total expenditure on goods and services, C+I+G+(X-M)= aggregate demand
Are all three measures of calculating GDP equal to eachother?
Yes the Expenditure, Income, Output method all give the same amount.
What are transfer payments?
monetary payments (ofte n from the gov.) that require no goods or services in return e.g. state pension, benefits, subsidies to firms
What is Nominal GDP?
Measuring GDP using current prices (not adjusting for inflation)
Real GDP?
adjusts for inflation when calculating GDP.
It measures GDP for several years at prices that were in place during a particular year (known as the base year)
Why is it important to use real GDP when measuring GDP over several years?
To prevent the growth in GDP (and quality of life, increase in goods and services) being over estimated.
What is the GDP deflator and why is it useful?
Another way of measuring inflation,The ratio of real GDP to nominal
CPI, the most common measure of inflation only takes goods and services into account but not the other areas of GDP (I,G, x-m)
