MR01:Report Card Flashcards
What is economic growth measured by?
The change in Gross Domestic Product (GDP)
GDP is the total market value of final output of goods and services produced within a country in a given time period.
What does the Circular Flow diagram illustrate?
The equality of income and expenditure
It shows how income flows between households and firms in an economy.
What are the two sectors involved in the Circular Flow of Income Model?
Households and Firms
This model assumes all income received by households will be spent on consumption.
In the 4-sector Circular Flow Model, what does Y stand for?
Total Income
Y = C + I + G + (X - M), where C is consumption, I is investment, G is government expenditure, X is exports, and M is imports.
What are the three ways of calculating GDP?
- Output Approach
- Income Approach
- Expenditure Approach
All methods should sum up to the same GDP amount.
What does the Output Approach measure?
The sum of value added in each industry sector
It reflects the total value of final goods and services produced.
What factors are included in the Income Approach?
- Wages
- Rents
- Interest payments
- Profits
This approach sums the total income generated by production.
What components are included in the Expenditure Approach?
- Consumption Expenditure (C)
- Investment Expenditure (I)
- Government Expenditure (G)
- Net Exports (X - M)
Net Exports is calculated as Exports minus Imports.
What does Consumption consist of?
Household sector’s purchases of currently produced goods and services
This includes daily consumption items.
What does Investment include?
- Business fixed investment
- Residential construction investment
- Inventory investment
Investment drives economic growth by increasing productive capacity.
What does Government Expenditure refer to?
Government purchases of goods and services excluding transfer payments
This includes spending on infrastructure, education, and healthcare.
What is the formula for GDP using the Expenditure Approach?
GDP = C + I + G + (X - M)
This formula aggregates all expenditures in the economy.
What does Real GDP measure?
The actual increase in goods and services, adjusted for inflation
It provides a clearer picture of economic growth.
What is Real GDP per capita?
Real GDP divided by the total population
It indicates living standards and economic well-being.
What is Gross National Product (GNP)?
The total market value of final output of goods and services produced by the citizens of a country
GNP considers the income earned by residents regardless of where the production occurs.
How is GNP calculated from GDP?
GNP = GDP + Net income inflow from abroad - Net income outflow to foreign countries
This formula adjusts GDP for income flows related to citizenship.
True or False: GDP and GNP measure the same economic activity.
False
GDP measures output within a country, while GNP measures output by its citizens regardless of location.
What does an increasing GDP trend indicate about an economy?
Positive economic growth
Sustained growth can transform an economy from poor to wealthy.
What can cause a higher nominal GDP without indicating wealth per capita?
- Higher prices
- Increased population
These factors can inflate GDP figures without improving individual wealth.
What does GDP stand for?
Gross Domestic Product
What does GNP stand for?
Gross National Product
What does GDP measure?
The total market value of final output of goods and services produced within a country in a given time period
What does GNP measure?
The total market value of final output of goods and services produced by the citizens of a country
How is GDP calculated?
By using the Output method, Income method, or Expenditure method
How is GNP calculated?
GDP + Net income inflow from abroad - Net income outflow to foreign countries
What does GDP indicate about a country’s economy?
The strength of a country’s local economy
What does GNP indicate about a country’s economy?
How the citizens of a country are doing economically
What is the definition of unemployment?
Non-availability of jobs for people who are able and willing to work
What does a low unemployment rate signify?
Low Unemployment
What is inflation?
A sustained and continuous increase in general price level in an economy over a period of time
What economic performance indicator measures inflation?
Consumer Price Index (CPI)
What does Balance of Payments measure?
Economic transactions between a country and the rest of the world
What are the key accounts in the Balance of Payments?
- Current account
- Capital account
- Financial account
Why is GDP considered an important indicator?
It is seen as a ‘report card’ for a country to judge government success in achieving macroeconomic objectives
How does the government use GDP?
To guide its policy decisions
What do businesses and economists use GDP for?
To forecast economic outlook and analyze business trends
What does GDP serve as a basis for?
Evaluating the standard of living of a country and for comparison across countries
What are some limitations of GDP as an indicator?
- Non-market production (e.g. home maker services)
- Composition of output
- Economic losses to production
- Unreported income
True or False: GDP includes illegal activities in its calculation.
False
Fill in the blank: The economic performance indicator for economic growth is measured by the increase in _______.
Gross Domestic Product
What is an Economic Performance Indicator?
A measure used to evaluate the economic performance of a country.
Indicators include GDP, unemployment rate, inflation, and balance of payments.
How is Economic Growth measured?
By the increase in Gross Domestic Product (GDP).
GDP reflects the total value of all goods and services produced in a country.
What does low unemployment indicate?
A situation where there are available jobs for people who are able and willing to work.
The unemployment rate is a key indicator of economic health.
Define Inflation.
A sustained and continuous increase in the general price level in an economy over a period of time.
The Consumer Price Index (CPI) is commonly used to measure inflation.
What does a healthy Balance of Payments indicate?
It measures economic transactions between a country and the rest of the world.
It includes the current account, capital account, and financial account.
Why is GDP considered an important indicator?
It serves as a ‘report card’ for a country to judge government success in achieving macroeconomic objectives.
It reflects the economic ‘health’ of a country.
List the uses of GDP by the government.
- To guide policy decisions
- To evaluate the standard of living
- For comparison across countries
Businesses and economists also use GDP to forecast economic outlook.
What are some limitations of GDP as an indicator?
- Non-market production (e.g., homemaker services)
- Composition of output (e.g., military goods)
- Economic losses to production (e.g., acid rain)
- Unreported income (e.g., underground economy)
- Distribution of real income and quality of life factors
GDP does not capture all economic activities or their impacts on society.
What is the unemployment rate?
The percentage of the labor force that is unemployed and actively seeking employment.
It is a key indicator of economic performance.
What does the Consumer Price Index (CPI) measure?
The average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
CPI is a principal measure of inflation.
Fill in the blank: The balance of payments includes the _______ account and the _______ account.
current; capital and financial
These accounts track all monetary transactions between a country and the rest of the world.
True or False: GDP accounts for all economic activities, including illegal ones.
False
Illegal activities like loan-sharking and gambling are typically not included in GDP calculations.
