National income (The macroeconomy) Flashcards
What is gross domestic product (GDP)?
The total value of all that has been produced over a given period of time within the geographical boundaries of a country
GDP is a key indicator used to gauge the health of a country’s economy.
What does gross national income (GNI) include?
The gross domestic product of a country plus net income from abroad
GNI reflects the total income earned by a nation’s residents, regardless of where the income is generated.
What is net national income (NNI)?
The gross domestic product of a country plus net income from abroad minus the depreciation of fixed assets
NNI provides a more accurate measure of a country’s economic performance by accounting for the loss of value of capital goods.
What is depreciation of capital?
The decline in the value of a capital asset over a given period of time (usually a year)
Depreciation reflects the wear and tear or obsolescence of physical assets.
What does net domestic product (NDP) represent?
The gross domestic product of a country minus depreciation or capital consumption
NDP provides a measure of the economic performance of a country while accounting for the loss of value of its capital assets.
What is net national product (NNP)?
The gross national product of a country minus depreciation or capital consumption
NNP indicates the total income of a nation’s residents after accounting for the capital used up in production.
What is the circular flow of income?
The flow of income around an economy, involving a mixture of injections and withdrawals or leakages.
Injections refer to the addition of spending or income, while withdrawals are the opposite.
Define a closed economy.
An economy that does not trade with the rest of the world.
Closed economies are self-sufficient and do not engage in international trade.
What is an open economy?
An economy that trades with the rest of the world.
Open economies are characterized by international trade and investment.
What is the circular flow of income?
The flow of income around an economy, involving a mixture of injections and withdrawals or leakages.
Injections refer to the addition of spending or income, while withdrawals are the opposite.
Define a closed economy.
An economy that does not trade with the rest of the world.
Closed economies are self-sufficient and do not engage in international trade.
What is an open economy?
An economy that trades with the rest of the world.
Open economies are characterized by international trade and investment.
What are the four main components of aggregate demand?
Consumption, Investment, Government Spending, Net Exports
These components collectively determine the overall demand for goods and services in an economy.
How do interest rates affect aggregate demand?
Changes in interest rates influence the price of borrowing money, which can affect consumption and investment levels.
Lower interest rates typically encourage borrowing and spending, while higher rates may reduce demand.
What does the money supply refer to?
The quantity of money available in the economy.
Changes in the money supply can impact inflation and overall economic activity.
How does taxation influence aggregate demand?
Changes in taxation can alter disposable income, affecting consumption and saving behavior.
Higher taxes typically reduce disposable income, leading to lower aggregate demand.
What role do expectations of future economic conditions play in aggregate demand?
Expectations can influence consumer and business confidence, which affects spending and investment decisions.
Positive expectations can boost demand, while negative expectations can dampen it.
What is meant by degrees of confidence in the context of aggregate demand?
Confidence levels refer to the optimism or pessimism of consumers and businesses regarding the economy.
High confidence typically leads to increased spending and investment.
How do exchange rates affect aggregate demand?
Changes in exchange rates can influence the competitiveness of exports and imports, affecting net exports.
A weaker currency makes exports cheaper and imports more expensive, potentially increasing aggregate demand.
What does the accumulation of income/wealth imply for aggregate demand?
Increased income or wealth can lead to higher consumption levels, thus increasing aggregate demand.
Wealthier households typically have a higher propensity to spend.
How does technology impact aggregate demand?
Technological advancements can improve productivity and create new products, influencing consumption and investment.
Innovations can lead to increased demand for new technologies and services.
What are the determinants of aggregate supply?
Changes in aggregate supply are caused by a number of factors, including:
* the state of technology
* the cost and productivity of capital
* the cost and productivity of labour
* the cost of raw materials
* taxation
* exchange rates
* government policy (e.g. rules and regulations)
Each determinant can significantly influence the overall supply in an economy.
Fill in the blank: Changes in aggregate supply are caused by changes in the state of _______.
[technology]
Fill in the blank: The cost and productivity of _______ are determinants of aggregate supply.
[capital]
