Term 3: Assessing Economic Performance (Slides 2) Flashcards
What is the size of an economy measured by?
Gross Domestic Product (GDP)
What does Gross Domestic Product mean?
The total value of all goods and services produced in the economy in a single year.
How do we measure GDP?
- By EXPENDITURE - everyone’s purchases
- If something is produced, then someone will have purchased it with money.
What is expenditure also called, and why?
Aggregate Demand, because demand causes spending
Whose spending do we need to measure in order to measure the GDP?
Consumers, Businesses, Governments, and Overseas Markets.
What is the official definition of aggregate demand?
- measurement of total amount of demand for all finished goods and services produced in an economy
- commonly expressed as total amount of money exchanged for those goods and services at a specific price level and point in time.
How do you measure GDP, using the Aggregate Demand method?
GDP = C + I + G+ (X - M)
What are the limitations of the aggregate demand method?
- Data collected from surveys that may cause inaccurate results
- doesn’t reflect the standard of living
- or the environmental sustainability of the country
- equality of the income distribution across the population
- inflation and currency fluctuations (off market economy)
- Different approaches to measuring GDP are used by the RBA (reserve bank of AUS)
Who measures GDP?
The Australian Bureau of Statistics
What are other indicators of the performance of the Australian economy?
- Standard of living
- Economic growth
- Income distribution
- Environmental sustainability
What are some of the indicators of the standard of living?
Housing
Job Stability
Transport
Quality of Food
Air quality
Education
Employment Opportunities
Health Services
Recreation Opportunities
Safety
Legal System
Right to Vote
What does GDP per capita mean?
The value of goods and services that each member of the economy has access to.
What should an increase in GDP per capita mean?
That the material living standards of each individual in the economy have improved.
What are some problems with GDP per capita?
- It’s an average - may not be equally distributed.
- GDP improvements could have come from longer working hours or tech. replacing labour - not an improvement of standard of living.
- GDP doesn’t measure environmental impact or access to environmental (eco-friendly??) resources
Why must economies grow?
- To replace the goods and services that have been consumed
- To account for population growth
- A desire to continually improve the quality of goods and services provided.
