Macroeconomics Paper 3 study Flashcards
What is GDP
GDP is the total monetary value of all finalized goods and services produced in the economy of a country and within the country’s borders in a specific time.
What are the two ways of calculating GDP?
Income Approach:
Add all the income earned by households as compensation for their FOP
- Land : rent
- Labor : wages
-Capital : interest
-Entrepreneurship : profit
Hence GDP = rent + wages + interest + profit
Output-expenditure Approach:
Adding C + I + GS + (X-M) = GDP = AD
What is and how do you calculate real gdp
Real GDP is the monetary value of all finalized goods and services produced in a country’s economy and within the country’s borders in a specific time. This type of GDP takes into account inflation
Real GDP = ( Nominal GDP / GDP deflator ) * 100
What is and how do you calculate Nominal GDP
Nominal GDP is the monetary value of all finalized goods and services produced in an economy of a country within the country’s borders in a certain timeframe. However, this type of GDP does not take into account inflation.
Nominal GDP = C + I + GS + (X-M)
What is real GDP per capita
Average economic output produced by a person within the population of a country adjusted for inflation
Real GDP / population
What is nominal GDP per capita
average economic output of a person within the population of a country that isn’t adjusted for inflation
Nominal GDP / population
What are some limitations of GDP?
Doesn’t take into account environmental impacts
Doesn’t take into account underground activities like things produced in the black market.
Doesn’t take into account non market output like household chores, caring for children or elderly)
Doesn’t take into account the type of output a country produces (if it’s guns or food)
Doesn’t take into account income inequality and wealth concentration: If the wealthy are producing a lot and hence increasing the AD, there is economic growth but the lower income individuals might not be producing hence earning a substantial amount even though there is economic growth.
What is the business cycle? Define the concept and draw a model while explaining the phases.
What are the drawbacks of the business cycle:
The business cycle shows the short term fluctuations of an economy and hence shows the long term trend of the economy and its economic growth.
Peak: This is when the economy is producing at its highest
Contraction: when the economy starts to slow down and economic growth decreases / deflation.
Trough: This is the lowest the economy is at which is usually a recession.
Expansion: This is when the economy begins to recover from a recession as price levels increase and output starts to increase. This is usually accompanied by inflation. Hence the economy is growing.
What is unemployment ?
What are the types of unemployment?
How do you measure unemployment?
What is the ideal percentage of unemployment in a country?
Why will there always be unemployment in a country?
Unemployment is the people who without a job but are within the labour age range and actively looking for a job.
The types of unemployment are:
Structural: when there is a mismatch between the job and the worker’s skill. Or, they are replaced by things like technology and their skills can’t be easily applied to other jobs. “Overqualified” or replaced by technology
Frictional: This is when the person is inbetween jobs like transitioning from one to another. Or, it could be a college student coming out of school and is starting to look for a job. Hence, they are “temporarily unemployed”
Seasonal: These people are unemployed because their jobs are dependant on a certain season of the year. For example, skiing can only happen in the winter. Or tourist jobs
The bad type of unemployment is cyclical unemployment: This is when people are unemployed because there is low demand in the economy. This is bad because it usually entails a recession. People are getting laid off and have less income hence they spend less which causes output to lower and prices to lower. This leads to deflation and usually a recession.
The ideal percentage of unemployment is around 2 to 3 percent
There will always be unemploymnet in a country because of the natural rates of unemployment.
