THE ECONOMIC ENVIRONMENT - GDP Flashcards

1
Q

What does GDP stand for

A

Gross domestic product

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2
Q

What is grodd domestic product (GDP)

A

The total value of all goods and services produced in an economy in a period of time (which is usually considered to be one year).

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3
Q

What is the formula for working out Nominal GDP

A

Nominal GDP formula = total output x price - This gives you the total value of everything sold

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4
Q

What is real GDP

A

Real GDP is slightly different - Because prices change overtime, prices tend to go up, it can look like an economy has grown - For example: It produces 10 goods, sells them 10 goods for £10 in total, that one year the economy is worth £10. Now say the following year you still create 10 products, but prices have gone up 10%, which makes the total value of the economy £11 this year. But there isn’t any change in output. Real GDP is a way of comparing total output with an adjustment made for changing prices

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5
Q

What happens in recovery and boom

A

Increaing output (i.e. economic growth is increasing, more money flowing around circular flow and income)

Rising employment and wages

Rising prices (inflation)

Balance of payments deficit

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6
Q

What happens in a slowdown and recession

A

Falling output (i.e. economic growth is declining, less money flowing around circular flow of income)

Falling employment and wages

Prices stable (falling?)

Balance of payments surplus

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7
Q

What are componenents of GDP

A

Consumption
Investment
Government Spening
Net Exports

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8
Q

What is consumption

A

Increases in income (wages/ salaries)

Increases in wealth (house prices)

Increases in consumer confidence

Exoansionary monetary/ fiscal policy

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9
Q

What is investment

A

Increases in profitablity

Increases in business confidence

Fall in length of experienced rates of return on an investment (how lonf it will take to pay back)

Expansioary momentom/ fiscal policy

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10
Q

Government spending

A

Changes in government policy

Increase in size of deficit

Change of political party

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11
Q

Net exports

A

Fall in relative value of sterling

Increase in overseas income

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12
Q

What are the opportunities and threats of GDP

A

Impact on business confidence
Impact on willingness to invest - returns on investment, cost of credit
Impact on consumer confidence - determines sales/ profits
Impact on competitiveness of markets
Impact on cost of production
Impact on recruitment decisions
Impact on interest rates

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