Macroeconomics L2

Question 1

What is GDP

Answer 1

measures total value of national output of goods and services produced in a given time period

Question 2

What does GDP stand for

Answer 2

Gross Domestic Product

Question 3

What are the 3 ways of calculating GDP

Answer 3

• Expenditure
• Factor incomes
• value of output

Question 4

Equation for GDP

Answer 4

AD (aggregate demand) = C+I+G+(X-M)

Question 5

How can GDP be analysed

Answer 5

Measuring value of output produced by different industries and by the value of spending in goods and services by households, businesses and the government

Question 6

What is value added

Answer 6

Increase in market value of goods or services during each stage of production or supply

Question 7

Equation for value added

Answer 7

= value of production - value of inputs used in supplying a good

Question 8

What is economic growth?

Answer 8

• Economic growth is the increase in the real value of goods and services produced and is measured by the annual percentage change in real Gross Domestic Product (GDP).
• Economic growth is a long-run increase in a country’s productive capacity / potential output.

Question 9

What is real GDP?

Answer 9

• takes inflation into account -where money GDP is adjusted for changes in the general price level.

Question 10

What is nominal GDP

Answer 10

• does not take into account inflation

- monetary value of the national output of goods and services measured at current prices.

Question 11

How is real gdp measured

Answer 11

measured at constant prices meaning that we have taken away (deflated) the effects of inflation

Question 12

Which gdp is more accurate

Answer 12

Real

Question 13

What does aggregate mean

Answer 13

Total

Question 14

what are the three main ways the economy as a whole can be monitored

Answer 14

Inflation rate, unemployment rate, economic growth

Question 15

What is the purpose of index numbers

Answer 15

To help solve problems through making unwieldy data easy to comprehend - simplify numbers and compare data

Question 16

Formula for index number

Answer 16

Index number = (raw number in period / raw number in base period) x100

Question 17

Why do economists not use money values to measure economic variables?

Answer 17

• volumes of goods produced change, and so do their prices

- if pounds are used, the unit of measurement will change each year as prices change

Question 18

Formula for converting nominal measurements to real (price index)

Answer 18

100 x nominal gdp/ real gdp

Question 19

Percentage change

Answer 19

New- original / original x 100

Question 20

How do you convert nominal percentage change into a real value

Answer 20

Nominal percentage change - rate of inflation

Question 21

What are nominal values

Answer 21

Measurements made using prices that are current at the time

Question 22

What are real values

Answer 22

The quantities produced after having removed the effects of price changes - measured at constant prices

Question 23

Define real gdp per capita

Answer 23

real income per head of population expressed at constant prices

Question 24

Define real disposable income

Answer 24

income after deduction of taxes + benefits & adjusted for the effects of inflation.

Question 25

What is GNI

Answer 25

-GDP plus net property income from overseas - includes remittances (money sent back to domestic countries, e.g India, Tonga)

Question 26

When is GNI per capita used

Answer 26

when calculating the income component of the Human Development Index (HDI).

Question 27

Why is GNI and GDP significantly different in lower and middle- income countries?

Answer 27

They have strong net inflows of remittances and other incomes (ceteris paribus) so will see their GNI rise.

Question 28

Difference between GDP and GNP/GNI

Answer 28

- GDP refers to the value of everything produced domestically i.e. within a country’s borders. - GNP refers to the value of everything produced by factors of production owned by a country, no matter where they are located.

Question 29

What does PPP stand for

Answer 29

Power purchasing parity

Question 30

Define PPP

Answer 30

measures how many units of one country’s currency are needed to buy the same basket of goods and services as can be bought with a given amount of another currency.

Question 31

What is the Big Mac index

Answer 31

-Big Mac Index compares the US dollar price of Big Macs across countries in order to assess how under/overvalued the local currency is against the US dollar. - The Big Max index is regarded as an indicator for the purchasing power of an economy. • The Big Mac is used for comparison because it is a product available in almost every country and manufactured in a standardized size, composition and quality.

Question 32

How does we mesure the standard of living?

Answer 32

real GNI per capita expressed at purchasing power parity.

Question 33

What is inclusive growth

Answer 33

When Living standards improve when a country sustains a rise in GNI and the benefits of growth are widely spread across the population.

Question 34

Benefits of using real GDP when assessing change in living standards

Answer 34

- Easy to make comparisons over time - Easy to compare different countries - correlates with Human Development Index. (HDI) - higher income generally correlates with being able to buy more goods and services

Question 35

How is GDP innacurate

Answer 35

-tends to understate real national income per capita due to: + presence and growth of the shadow economy (illegal activity) +value of unpaid work done by volunteers and by people caring for their family.

Question 36

What is gnp

Answer 36

Gross National Product (GNP) is the market value of all products produced in an annum by the labour and property supplied by the citizens of one country.

Question 37

What is the difference between gnp and GNI

Answer 37

GNP: takes into account net income receipts from abroad. GNI: includes the value of all goods and services produced by nationals – whether in the country or not.