Week 1 - GDP Flashcards
GDP as a measure of the economy fails in one regard because different people make different decisions, spend different amounts of time pursuing leisure, and earn different wages. This is described by what limitation?
GDP ignores distribution
Dividing _____ by the annual growth rate gives the approximate number of _____ until the original amount doubles.
70;years
In the circular flow diagram, households provide _____ to the market for inputs and _____ from the market for inputs.
labour and inputs; receive income
Waubub is buying a new car. In this case, the tires on the car are _____ counted in GDP because they are _____.
not individually; not a final good
Would an employee directly spending her paycheck on an oil change for her car be in the market for inputs or outputs, and why?
market for outputs, because once the paycheck is received it belongs to the household sector and is then used in the output market
Is government spending on the military included in GDP?
Yes! It is a final SERVICE
Are the four tires on a new car included individually in the GDP?
No. They are included in the price of the car
Is a fifth tire bought seperately to replace one of the tires on a new car included individually in the GDP?
Yes! An additional tire is it’s own final good
What’s in the market for inputs
inputs provided, inputs bought
What’s in the market for outputs
Output bought, output sold
What do households do in BOTH markets for inputs and markets for outputs?
Provide inputs and buy outputs
What do businesses do in BOTH markets for inputs and markets for outputs?
Buy inputs and provide outputs
What is GDP when inputs are provided by ____ ?
provided by: households
GDP = income received
What is GDP when inputs are bought by ____ ?
bought by: businesses
GDP = Wages & profits
What is GDP when outputs are bought by ____ ?
bought by: households
GDP = spending on output
What is GDP when outputs are sold by ____ ?
sold by: businesses
GDP = market value
Is this a micro or macroeconomic question: What determines the salary offered by UBC to staff in the Totem Dining Room?
microeconomic (think individual firm)
Paradox of thrift
Families worried about a recession that cut spending will actually cause a recession g.
Disposable income
the amount of income a household has after receiving transfers and paying taxes.
Net exports (NX)
Exports - imports (X - IM)
Gross domestic product (GDP)
the market value of all final goods and services produced within a country in a year.
What does GDP not include
ISONF
- value of intermediate goods
- value of stored inventories
- value of things from other years
- goods that are not final
- anything produced foreignly
ISONF
Three ways to measure GDP
- Total spending
- Value added (output)
- Total income
Total spending (GDP method)
cig
y = C + I + G + NX
Value Added (GDP method)
Total sales - intermediate cost (for each stage)
Total income (GDP method)
total wages + profits
What does GDP miss?
SEIP
- Shadow economy
- Environmental damage
- Ignores distribution
- Prices are not necessarily values
SEIP
Factors of income
Wages (Labour)
Interest (Capital)
Rent (Land)
Profit (Entrepreneurship)
Real GDP
GDP measured with constant prices - useful for comparisons over time
Nominal GDP
GDP measured in today’s prices
Chained dollars
Method of calculating GDP using average price. IN THE BASE YEAR DON’T USE THIS AVERAGE
GNP gross national product
Gross national product - income earned by residents regardless of where that income is earned (has to be a resident tho)
What’s better in the short run (GDP or GNP)
GDP
Macroeconomics
examines the aggregate behaviour of the economy; society as a whole
National accounts - four main economic sectors
households, firms, governments, foreign households
Physical capital
purchase of new machinery and buildings - a type of investment
Investment
The spending of firms of productive physical capital and on changes to inventories
What national account does investment
Firms
What national account has rent, entrepreneurship profit, wages, interest
households
private savings
disposable income not spent on consumption
Monetary policy
changes quantity of money
Fiscal policy
Changes to government spending
Trade policy
controls the flow of goods
Labour policy
influences the labour markets
Keynes
Said we should spend in a recession - this is good
how to calculate change in GDP
(final - initial)/initial x 100%
Test
Test
