Topic 6 - Measuring a Nation's Income and the Cost of Living Flashcards
Define “Macroeconomics”.
Macroeconomic is the study of the economy as a while. It’s goal is to explain the economic changes that affect many households, firms, and markets at once.
What is “GDP”?
GDP stands for Gross Domestic Product and is the market value of all the final goods and services produced within a country in a given time period.
Why does the GDP rely on the market value of goods and services?
As the GDP takes into consideration many different types of products, it uses the market prices to create a common unit of account for each good.
True/False: GDP includes goods and services from primary sectors?
False. The GDP only includes final goods, the only time the goods and services of a primary industry are included in GDP is if they are sold internationally.
What are the four components of GDP? (Y)
- Consumption Expenditures (C)
- Investment (I)
- Government Purchases (G)
- Net Exports (NX)
What is included under the term “Consumption Expenditures”?
Consumption Expenditures describes the spending by households on goods (e.g. cars, appliances and food) and services (e.g. haircuts and medical care), except the purchase of new housing.
What is included under the term “Investment”?
Investment describes the purchase of goods (e.g. capital equipment, structures, inventories and household purchases of new houses) that will be used in the future to produce other goods and services.
What is included under the term “Government Purchases”?
Government Purchases describes spending on goods and services by local and central governments.
- Includes the salaries of government employees and government works
- Does not include transfer payments, (social welfare) as these payments do not reflect and economies production.
What is included under the term “Net Exports”?
Net Exports describes the purchase of domestically produced goods by foreigners (exports) minus the domestic purchases of foreign goods (imports).
True/False: Imports are included in Consumption expenditures, investment and government produces.
True. That is why they must be removed from the Net Exports.
Define “Gross National Income”.
Gross National Income (GNI/GNP) The total income earned by a nation’s permanent residents (called nationals).
How is GNI calculated?
GNI = GDP + NFIA NFIA = Net Factor Income from Abroad
Define “Gross National Disposable Income”.
Gross National Disposable Income is the GNI plus net current transfers from the rest of the world.
(e.g. NZ pays aid to the Solomon Islands)
Define “Nominal GDP”.
Nominal GDP uses the current prices to value the economy’s production of goods and services that year. Changes in nominal GDP reflect both changes in the quantities of goods and services and their prices.
Define “Real GDP”.
Real GDP uses constant (base-year) prices to place a value production of goods and services. Changes in real GDP reflect only changes in the quantity of goods and services.
