Macroeconomics HL + SL Flashcards
What are the five macroeconomic objectives?
- Steady rate of economic growth
- Low level of unemployment
- Low and stable rate of inflation
- Sustainable level of government debt
- An equitable distribution of income
How is GDP measured?
- the output method
- the income method
- the expenditure method
What is the output method?
measures actual value of the goods
summing all of the value added by firms in an economy
each stage of production, we deduct the cost of inputs as to not ‘double count’
data grouped according to different production sectors
goods and services arrow
What is the income method?
measures the value of all the incomes earned in the economy
(wages, rent, interest, profits)
What is the expenditure method?
measures the value of all spending on goods and services in the economy
calculated by summing C+I+G+(X-M)
What happens in practice? (data collection for GDP)
will come from different and varied sources, inaccuracies, imbalances among the final values
some of the inaccuracies are the result if the timing of the data gathering, often figures have to be revised at later dates when full information is collected.
Definition of GDP
total of all economic activity in a country, regardless of who owns productive assets.
Definition of GNI
total income that is earned by a country’s factors of production, regardless of where the assets are located
Why are National Income Statistics gathered?
- report card for governments
- stats to develop policies
- uses stats to develop models of the economy and make forecasts of the future
- businesses uses stats to make forecasts about future demand
- performance of economy can be analysed
- evaluate standard of living
7.NI stats used as a basis for comparing diff countries
What are the limitations of NI stats?
- inaccuracy - data comes from a wide range of sources
- unrecorded or under-recorded activity; informal markets
- hidden economy: illegal activity
- External costs - does not take into account the costs of resource depletion eg cutting trees
- other quality of life concerns: not necessarily better q of life
- composition of output: defence goods or capital goods does not benefit the wider population
What is the business cycle?
period of slowing growth and falling growth
increase in AD leads to increase in prices
economy ‘booms’ leads to a rise in inflationary pressures
rate of growth of GDP will fall as the economy nears its potential output
fall in AD
recession
firms laying of workers
rise in unemployment
less spending
less AD
less inflation
contraction comes to end: (cannot keep falling forever- known as trough)
AD pick up
economy in recovery phase
Definition of recession
two consecutive quarters of negative GDP growth
What other measures of economic well-being exist?
1.OECD Better Life Index
2. Happiness Index
3. Happy Planet Index (HPI)
OECD Better Life Index
allows comparison of well-being across countries, based on 11 topics that have been identified as essential
- material living conditions
1. housing
2. income
3. jobs
- quality of life
4. community
5. education
6. environment
7.governance
8. health
9. life satisfaction
10. safety
11. work-life balance
Happiness Index
factors taken into consideration:
1. GDP per capita
2. social support
3. healthy life expectancy
4. freedom to make choices
5. generosity
6. perceptions of corruption
