Week 1 Introduction to Macroeconomics Flashcards
What is GDP?
GDP is the total market value of all final goods and services produced in an economy over a given period of time.
Market value - calculating the value of productio at market prices (QXP), then sum them all up
‘Final goods and services’ - gets to the final user, not intermediate goods( goods used to produce other goods), e.g. it takes a lot of materials to build a car, but the car itself counts as GDP.
‘given period of time’ -different frequencies of time
What is Real GDP and GDP per capita?
this is the value of GDP adjusted to inflation
GDP per capita is the value of GDP divided by the population of the country ( average output per person in an economy)
What do we mean by Economic Growth?
A. Long-run improvements in general living standards
B. Long-run improvements in education, health, and anything else that contributes to wellbeing
C. Long-run increases in Gross Domestic Product (GDP)
D. Long-run increases in Gross Domestic Product (GDP) per capita
E. No idea bro
A, B and C.
GDP is not a good indicator of living standards.
Why is GDP not a good indicator of living standards?
it does not directly account for leisure, environmental quality, levels of health and education, activities conducted outside the market etc
So what is the general meaning of GDP?
General meaning
○ Long-run improvements in general living standards
■ Consumption of goods and services, education, health, and anything else that contributes to wellbeing
Who among these countries has the highest GDP per capita today?
A. United States
B. United Kingdom
C. China
D. Niger
E. Ireland
Ireland is the correct answer ( from the data we have in lectures followed by US, then UK, then China, the Niger
What is the formula for GDP?
The sum of consumption (C) + Investments( I) + Government purchases( G) and Net exports ( NX)
What is another name for the GDP formula?
Income expenditure idenitiy
What is the difference between durable and non durable goods?
Durable goods - provides utlitity overe time ( a car)
Non durable goods- provides utility straight away ( fruit food)
What does Consumption in the income expenditure identity include?
Goods and services in the hands of consumers, we have durable and non durable goods. Services like netflix are included in the GDP.
What are 3 types of investment?
Fixed investment ( Non residental) - such as plants, equipment, machines
Fixed investment ( Residental) - such as houses built in the current period of interest.
Inventory investment - goods that are ready and avaliable to sell, so storage.
What are the problems of using GDP as a measure of standards of living?
Doesnt take into account the black market ( illegal activites, durg market)
It leaves out non-market activites such as grandparetns looking after children, which in poorer countries take a lot of their GDP.
Difficult to measure govt production such as defense services as it is typically not sold on the market.
What is the difference between GDP and GNP?
GNP - is the value of output produced by domestic factors of production, regardless of whether the production takes place inside the countrys border.
GDP - only takes into account output produced in a specific terrtitory.
What is the formula for GNP
GNP = GDP + NFP ( NET FACTOR PAYMENTS) this is income paid to domestic factors of production by other countries
In Macroeconomics we are concerned about how GDP changes over time, what are the 2 ways GDP changes over time?
Prices and Quanitites
To calculate Real GDP what do we keep constant?
We keep prices constant so we can isolate the effect on quanitites.
What does the inflation rate allow us to determine?
it allows us to determine how much of an increase in GDP is nominal ( prices going up) and how much is real( production going up)
How would you calculate nominal GDP and percentage increase in Nominal GDP from year 1 to year 2?

P X Q

How do we calculate Real GDP, first what do we have to do?

We have to keep prices constant, ie we need to have a base year fixed prices.
If we use Year 1 as base year, what is the Real GDP and percentage increase from year 1 to 2?


Now lets use Year 2 prices as the base year, calcuate the Real GDP?


Depending on base year, what is the differences in Real GDP?
You get different growth rates for Real GDP depending on the base year, this is problematic and not a fair representation ( using BY of year 1 prices Real GDP is 35.4 and using BY of year 2 prices, gives us a Real GDP of 31.2%).
What do the National statstitcs office use, due to the different growth rates of Real GDP using different base years?
Chain weighted average of Real GDP in year 1 and 2
This answer was in between the 31.2% and the 35.4%
( Real GDP USING BASE YEAR PRICES 1 AND REAL GDP USING BASE YEAR PRICES 2, SQUARE ROOTED = ANSWER)
The answer should of been 33.2%

Economists like to know the price level over time,thus they need a measure of prices in the economy, which is what?
Impilicit GDP price deflator - Nominal GDP/ REAL GDP X 100
This is always going to be equal to 100 because Nominal and Real GDP are exactly the same. ( this is called an index number, this shows you how things evolve with respect to a base line case)











