Measure Economic Activity

Question 1

Define households

Answer 1

Buy goods and services with income earned

Question 2

Define firms

Answer 2

Hire workers to produce goods and services to be sold in the market

Question 3

Define leakages from circular flow

Answer 3

Part of incomes that leak out of the economy (e.g. Savings)

Question 4

Define injections into circular flow

Answer 4

Part of incomes that flow into the economy (e.g. Purchase of physical capital by firms)

Question 5

Define GDP

Answer 5

The value of all final goods produced in an economy over a given period (excludes intermediate goods to avoid double counting)

Question 6

What is savings in closed economy?

Answer 6

Savings = investment
(R=s+c) (y=I+c)
(Y=r)
(S+c=I+c)
C's cancel so s=I

Question 7

Define income measured at basic prices

Answer 7

Yb=Y-Te=Y+B-Te-Td

Question 8

Define nominal GDP

Answer 8

GDP computed at current prices

Question 9

Define real GDP

Answer 9

GDP computed at base year

Question 10

Define GDP deflator

Answer 10

Measures the evolution of prices

Nominal GDP/real GDP