Macroeconomics 13-18 Flashcards
13. The level of overall economic activity - 18. Supply-side policies
Gross-domestic product (GDP)
Total value of goods produced in an economy over a given time period
Income method
Measures the value of all income earned in a country from wages, rent etc.
Output method
calculates the total output produced in a country
Expenditure method
Calculates GDP by adding up the total money spent in an economy
Gross national income (GNI)
GDP + net property income (current transfers) from abroad
Real GDP/GNI
Adjusted to the effects of inflation
GDP/GNI per capita
GDP or GNI divided by the amount of people in a nation – measure of living standards.
Main macroeconomics goals (5)
- A steady rate of increase of national income (economic growth). 2. Low level of unemployment. 3. low and stable rate of inflation. 4. sustainable level of gov debt. 5. equitable distribution of income
Leakages in circular flow of economy
Savings, taxes, imports
Injections in circular flow of economy
Government spending (goods and services), investments, exports
Problems with measuring national income (5)
- inaccuracies, 2. unrecorded activity and parallel economy, 3. external costs, 4. quality of life concerns (ppl work longer for GDP growth), 5. composition of output (weapons doesn’t benefit consumer, think USSR)
Calculation: GDP adjusted for inflation
GDP per capita / living standard
Calculation: GDP growth
new - old / old x 100%
Phases of the business cycle (4) and GDP
Recovery (increasing), boom (height), recession (decreasing), trough (low)
Aggregate demand
Total expenditure on consumption, investment, government spending and net export (AD=C+I+G+X-M)
Government spending
Spending by governments on goods and services such as health, education or law enforcement (not transfer payments)
Price level (APL)
Overall level of prices including inflation
What causes changes in consumption? (5)
- Changes in income, 2. Changes in interest rates, 3. Changes in wealth, 4. Changes in consumer confidence/expectations, 5. Household indebtedness
What causes changes in investments? (6)
- Changes in interest rates, 2. Changes in business taxes, 3. Technological change, 4. Changes in expectations/business confidence, 5. Level of corporate indebtedness, 6. Changes in national income
What causes changes in government spending?
Depends on political and economic priorities of the government. If government spending increases, AD shifts to the right
What causes changes in net exports?
Foreign incomes and inflation (export), national income (import)
Aggregate supply
Total output, total supply of goods and services produced in an economy at a given time period at an overall price level
Supply shock
Unexpected event that affects supply, sudden change in price – generally negative (e.g. hurricane destroys all factories)
SRAS shape and explanation
Upward sloping. Higher market prices, increase in output. No change in prices of FoPs in SR -> larger profit margins. Supply constrains due to diminishing returns and scarcity
What causes shifts in AS
Changes in costs of production: 1. wage rates, 2. cost of raw materials, 3. price of imports, 4. government indirect taxes or subsidies. Supply-side shocks. (ANYTHING BUT PRICE)
LRAS – two schools of thought
New classical (monetarist), Keynesian