Principles of Economics from Textbook - Measuring a Nation’s Well-Being and the Price Level Flashcards
What’s ‘microeconomics’?
The study of how individual households and firms make decisions and how they interact with one another in markets
What’s the name for ‘the study of how individual households and firms make decisions and how they interact with one another
in markets’?
Microeconomics
What’s ‘macroeconomics’?
The study of the economy as a whole
What’s the name for ‘the study of the economy as a whole’?
Macroeconomics
What’s an important point to remember when learning about the history of economic thinking
There are a number of areas of controversy in macroeconomics. Some of the disagreements of economists stem from economic history and different schools of thought, which have shaped thinking over the last 250 years. It must be remembered that some of the most revered economic thinkers were people of their day, describing, analyzing and thinking about problems which were highly relevant at particular points in history. Economies and the context in which they operate do not stand still, and what was relevant
and prescient about the way an economic system was thought to have worked in one period of history
does not necessarily mean that its mechanics and analysis can be transferred to other time periods. For example, the analysis of the causes of the Great Depression of the 1930s and the policy options which
were appropriate to remedy some of the problems caused by the crisis, may have some similarities to the
causes and consequences of the Financial Crisis of 2007–9. However, the world in 2007 was a very different place from that of 1929–30. Given the differences, to what extent are policy measures which derived
from the analysis of the Great Depression relevant and applicable to post-Crisis economies?
What’s the goal of macroeconomics?
To explain the economic changes that affect many households, firms and markets simultaneously
Why do economists analyse the economy as a whole?
As it provides an indication of the overall wellbeing of an economy
Describe the 2 measures of well-being in an economy
Subjective well-being refers to the way
in which people evaluate their own happiness, and objective well-being refers to measures of the quality
of life and uses indicators
Give examples of indicators that measure an economy’s objective wellbeing
Educational attainment, measures of the standard of living, life expectancy
Explain why higher income leads to improved well-being
Having a reasonable income means that people can afford to buy the
necessities and luxuries in life which contribute to subjective well-being. Countries with higher national
incomes can provide better quality education, more secure jobs, higher quality of housing, infrastructure
and healthcare, among other things, which affect objective well-being
What is it? What is its main limitation?
Describe briefly and discuss the most common way in measuring an economy’s wellbeing
Incomes are used as a measure of well-being because incomes can be used to purchase life’s necessities
and luxuries. Income is, therefore, equated with the standard of living. Those with higher incomes enjoy higher standards of living – better housing, better healthcare, fancier cars, more frequent and luxurious holidays and so on. The same logic can be applied to a nation’s overall economic well-being. One of the most common ways in which the well-being of an economy is measured is through gross
domestic product, or simply GDP, which measures the total income of a nation. To judge whether an economy is doing well or poorly, we can look at the total income that everyone in the economy is earning. This is the task of GDP. GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy’s output of goods and services. These two things are really the same because every transaction has two parties: a buyer and a seller. GDP is a widely reported
macroeconomic statistic, but it has its critics, and the way the data are collected also has limitations. As
with many things, what is considered a good measure of well-being depends on underlying belief systems and judgements. For example, GDP measures focus on incomes, with the implication that higher
national income equates to an increased ability to acquire more goods and services, which in turn means increased well-being. This can be interpreted as being based on a consumerist value system, which may not take adequate account of factors which can also contribute to subjective and objective well-being.
Some economists have pointed out that despite considerable increases in GDP since the late 1960s
in many developed countries, reports of subjective well-being have not risen by the same amount. There
may be a number of reasons for this, but it seems that what economists and politicians might use as a
measure of the health and wealth of an economy are not perceived in the same way by the citizens of a
country
Define ‘standard of living’
The amount of goods and services that can be purchased by the population of a country
What’s ‘the amount of goods and services that can be purchased by the population of a country’ the definition of?
Standard of living
