THE ECONOMIC ENVIRONMENT - GDP Flashcards
What does GDP stand for
Gross domestic product
What is grodd domestic product (GDP)
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).
What is the formula for working out Nominal GDP
Nominal GDP formula = total output x price - This gives you the total value of everything sold
What is real GDP
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
What happens in recovery and boom
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
What happens in a slowdown and recession
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
What are componenents of GDP
Consumption
Investment
Government Spening
Net Exports
What is consumption
Increases in income (wages/ salaries)
Increases in wealth (house prices)
Increases in consumer confidence
Exoansionary monetary/ fiscal policy
What is investment
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
Government spending
Changes in government policy
Increase in size of deficit
Change of political party
Net exports
Fall in relative value of sterling
Increase in overseas income
What are the opportunities and threats of GDP
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