The Macro economy Flashcards
The circular flow of income
the model of the flow of funds between firms, households, government and overseas
Gross Domestic Product
the value goods and services produce by an economy in a given time period
calculation of GDP
output (firms production)
income (wages, profits, rent, interest)
expenditure (consumption, investment, government spending, net exports)
all equall
Gross National Product
GDP+international assets and investment abroad
real GDP vs nominal
adjusted for inflation vs not
economic growth
the rise in real GDP over time
Evaluation of GDP
inaccurate - muotpeq
time lag
different measurements
unrecorded/under recorded economic activity (parallel markets/tax evasion)
external costs - depletion of resources, pollution
quality of life - well-being index
composition of output - inequalities in distribution
purchasing power parative (of population)
Economic cycle
rate of economic growth over time
recession
two consecutive quarters of negative growth
consequences of recessions
falling incomes, less diversity of goods, unemployment, worsening public services
government objectives
low unemployment good balance of payments low inflation, steady + sustainable economic growth less income inequality
unemployment
when people are willing and able to work, but cannot get work at the going wage rate
inflation
a sustained rise in the general price level resulting in a fall in the value of money
confidence
the extent to which people are positive in their predictions about the future
investment
spending on capital goods or holding stocks of finished goods
output gap
difference between the actual level of national output and its trend level
intervention for governments
monetary policy (interest rates + QE) fiscal policy (government spending+taxation)
Elements of living standards (UN HDI index)
income (GDP)
health (life expectancy)
education (average years in school)
GNI
GDP+Net property income abroad (inflow of domestic assets owned abroad- outflows of foreign assets in the domestic economy)
Leakages and injections in the circular flow of income
leakages: savings, taxation, imports
injections: investment, government spending, export
Infrastructure
Large scale public systems (services and facilities) used to allow or foster economic activity. Usually supplied by the government because often public goods.
Allocation of resources
How the factors of production are distributed in an economy
