Macroeconomics Flashcards
Purpose of Real GDP
To make comparison (across nations or time)
Assess economic
performance
Create policy
Measure GDP by
Total income, Total expenditure, Total output
GNI
Gross national income is the total income generated by resources owned by a country irrespective of location
Actual Growth
In short run increased expenditure by all sectors causes firms to respond with increased output
National output
Total output of goods and services produced within a country, measuring economic activity
PPP
Purchasing Power Parity
inflation adjusted GDP for cost of living differences (price difference across nations) - necessary for comparing countries.
Real GDP
Inflation adjusted to a constant base year price used to compare economic activity over time
Happiness Inex
An index based on the dimensions of RGDP per capita
GDP Deflator formula
Nominal GDP / Real GDP
Nominal GDP
C+I+G+(X-M)
Business Cycle
Cyclical fluctuations in economic activity over time
Expansion, Peak, Contraction, Trough
Recession
When economic downturn, contraction leading to troughs
Contraction
A contraction occurs when growth slows, employment fails and price stagnate
Consequences of Contractions
Stock goes up, RGDP goes down, Inflation goes down
Expansion
Low interest rate, production increases, confidence increases, unemployment fails, RGDP goes up
Limitations of GDP
Does not include non-marketed output
Does not include output sold in parallel markets
Does not take into account quality improvements
Fails to account for negative externalities
Fails to account for resource depletion
Limitations of Living standards
Does not distinguish between composition of output
Can not reflect other improvements
Does not indicate distribution of output
Does not account for leisure time changes
Does not measure other quality of life factors
