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AS Econ Macro > Oct test 1 > Flashcards

Oct test 1 Flashcards

1
Q

What is GDP

A

Gross Domestic Product

The total value of the output of goods and services over a year period

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2
Q

Difference between GDP and Economic growth

A

Economic growth = the change in GDP (+ or -)

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3
Q

What is an injection

A

Money entering the circular flow of income

- spending from outside the economy into it (e.g. gov spending)

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4
Q

What is a leakage

A

Money leaving the circular flow of income

- part of our income which isn’t spent on domestic goods and services (e.g. savings)

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5
Q

How do you get GNI

A

GDP + income from citizens abroad - income by foreigners living in the country

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6
Q

What is the GNI

A

Expenditure
Income
Output

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7
Q

3 Injection examples

A

Investment
Government spending
Exports

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8
Q

3 Leakage example

A

Savings
Tax
Imports

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9
Q

Inflation definition

A

The rise in general prices in an economy.

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10
Q

What is Nominal GDP

A

The face value of GDP, unadjusted for inflation

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11
Q

What is Real GDP

A

GDP adjusted for inflation. E.g. if the NGDP has grown 2% and prices have risen 2% the real GDP has not gone up

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12
Q

What are nominal figures

A

Figures expressed in current prices and represent the value of good and services produces

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13
Q

What are real figures

A

Figures that are adjusted for inflation, so the figures are expressed in constant prices and represent the volume of goods and services produced

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14
Q

What 3 items are excluded from GDP

A
  • Transfer payments (grants and benefits)
  • Private transfers of money from one individual to another (pocket money or selling old car)
  • Hidden economy (drugs and prostitution)
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15
Q

GNI (gross national income) VS GNP (gross national product)

A 
GNI = GDP plus wages, salaries, and property income of the country's residents earned abroad.
GNP = reports how much is earned by the country's citizens and businesses, no matter where it is spent in the world
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16
Q

Actual vs potential economic growth

A 
Actual = increase in real GDP
Potential = increase in the productive capacity of an economy (how much an economy COULD produce even if it isn’t currently doing so)
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17
Q

7 characteristics of a boom

A
  • more economic growth
  • more demand
  • less unemployment
  • inflationary pressure (more inflation)
  • Labour skills shortages
  • more confidence in the economy
  • more capital goods investment
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18
Q

7 characteristics of a recession

A
  • less economic growth
  • less demand
  • more unemployment
  • no inflationary pressure (more inflation)
  • Labour skills excess
  • less confidence in the economy
  • less capital goods investment
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19
Q

What is the governments definition of a recession

A

Two quarters of negative economic growth

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20
Q

What is the C in CELL

A

Capital

E.g. tools, machinery, buildings, computers

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21
Q

What is the E in CELL

A

Enterprise

E.g. business owners undertake in the pursuit of profit

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22
Q

What is the first L in Cell

A

Labour

E.g. skills of the work force

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23
Q

What is the second L in CELL

A

Land
E.g. all natural resources
Fish, oil, wind

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24
Q

What is economic growth

A

The rate of change of a countries output - measured in GDP

25
Why is economic growth and objective (6)
``` Job creation Rising incomes Improved living standards Confidence in economy Less spent on benefits Tax revenue will increase ```
26
Why is unemployment bad? | 6
It represents a waste of resources ``` Less economic growth Bad social impacts Low productivity Lower tax revenue More poverty Worse standards of living ```
27
What is inflation? | and what is it measured in? You
The rate of change of average prices in an economy | Measured in: consumer price index (CPI)
28
How much inflation is targeted?
Target = 2% increase +/- 1% Which allows stability
29
What is a balanced government budget
Where expenditure is equal to revenue
30
What is protection of the environment?
Government look to develop sustainable future through energy use The government invest in companies to support this
31
Why is greater income equality admirable
It leads to higher levels of economic growth, better living standards for all and a happier society overall
32
What is the current account
Value of imports - exports
33
What is the circular flow of income
An economic model showing the flow of goods and services, the factor of production and their payments between households and firms within an economy
34
What is meant by a simple closed model (circular flow diagram)
- no foreign trade + no government influence | - only 2 groups: households and firms
35
``` What are the factor rewards for: Land (buildings) Labour (output) Capital (investments) Entrepreneurship ```
``` Land = rent Labour = wages Capital = interest Entrepreneurship = profit ```
36
What assumptions are made for a simple circular flow model? (4)
- Households spend all their money on goods and services - Firms spend all their income on factors of production - There is no government - There is no foreign trade
37
Is wealth a stock or flow concept? | Is income a stock or flow concept?
Wealth = stock concept (assets owned and human wealth(skills)) Income = flow concept (wages, rent, interest)
38
What is the relationship between income and wealth?
More income = more wealth | Interest = input of wealth = resulting in more income
39
Impact of investing in capital goods?
It means we increase the productivity capacity, so our ppf moves outwards So in the future more consumer goods can be made
40
Characteristics of a slump (5)
- High unemployment - Lots of firms going out of business - low demand and inflation - low/negative economic growth - low confidence in economy
41
Characteristics of a recovery (5)
- Lower unemployment - More capital investment - higher demand and inflation - increased economic growth - high confidence in economy
42
What is economic growth
An increase in real GDP level
43
What is economic slowdown?
A fall in the growth rate of real GDP | - So the level of real GDP continues to rise but at a slow rate
44
What is a recession? (Economic growth)
Two consecutive quarters of negative real GDP growth | - So the level of real GDP actually falls
45
Definition of output gap:
The difference between the actual GDP and the trend/potential GDP
46
What is a negative output gap:
When the actual GDP is less that trend/potential GDP | - Deflation gap
47
What is a positive output gap:
When the actual GDP is more that trend/potential GDP | - Inflation gap
48
What is the meaning of potential output?
Potential output occurs when the economy is working at full capacity over the long-term All factors of production are working efficiently
49
How can the economy be working above the potential output in the short-term
The economy can operate above the potential output in the short-term but the pressure on factors of production such as labour means it is unsustainable
50
Why is the output gap difficult to measure?(2)
- It is hard to measure aggregate demand and aggregate supply - Potential output is based on estimates of the CELL factors of production (which could be inaccurate)
51
Relationship between GDP and living standards;
More GDP = better living standards
52
What do we need to be careful about when measuring living standards against GDP?
GDP per capita = total GDP/population | Only one measure of living standards
53
Problems of comparing GDP between developed and developing countries? (4)
- Accuracy of statistics can vary - often developing countries consume what they produce - developed countries often increase incomes at expense of quality of life - developing countries might wish to achieve growth at the expense of health and safety
54
What is GNP
The value of good and services over a period of time by citizens of a country both domestically and overseas
55
Problems with comparing GDP over time? (5)
- population change - quality of goods not considered - defence related expenditure - externalities are not considered - income distribution is worse
56
Problems with comparing GDP between countries? (6)
- adjust for population - income distribution - accuracy of figures - spending on defence - other living standards - some goods are made and sold internally
57
What is meant by PPP (our having power parities)
Ppp is an exchange rate | With the 2 identical baskets
58
What does ppp reflect
The cost of living
59
What is the easterlin paradox?
The idea that when the average wealth of people increase their happiness does not increase

AS Econ Macro (14 decks)

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