Week 6 - Measuring the macroeconomy Flashcards
Macroeconomics definition (Blaug 1985)
Is a branch of economics that deals with the performance, structure, behaviour and decision-making of the entire economy, be that a national, regional, or the global economy
Important macroecomic indicators (11)
Key agents the economy has
- Households
- Firms
- Govermenent
- Financial institution e.g banks
- The economy of the rest of the world
Measuring the size of the economy
Income = expenditure = output
3 methods of measuring economy size
- Calculate how much income is earned over a period of time + rent + profit
- Calculate how much expenditure is spent over a period of time
- Calculate the value of all goods and services over a period of time
What is GDP?
GDP (gross domestic product) helps the government to decide how much it can spend on public services and how much it needs to raise taxes
Impact of a changing GDP (3)
- If GDP is falling then economy is shrinking and if it falls two quarters in a row then this is known as a recession
- If GDP is growing the giverment will use it as evidence that it is doing a good job of managing the economy
- If GDP is going up steadily, people will pay more tax simply because they are earning and spending more
3 ways GDP is measured
- Output - Total value of goods and services produced by all sectors of the economy
- Expenditure - The values of goods and services bought by households and government, investment in machinery and buildings
- Income - The value of the income generated, mostly in terms of profits and wages
Limitations of GDP (2)
- Hidden economy - unpaid work isn’t captured in official figures, such as caring for an elderly relative
- Inequality - GDP growth doesn’t tell us how income is split across a population and a rising GDP could result from the richest getting richer instead of everyone being better off
Leakages from the circular economy model (3)
- Savings - (linked with banks)
- Taxes - (Linked to government)
- Imports - (linked to abroad)
Injections into the circular flow of income
- Investments (I) (linked to banks)
- Government spending (G) (linked to government)
- Exports (X) (linked to abroad)
Expenditure method of calculating GDP formula
Formula for Gross national product (GNP)
GDP + NPI (Net property income)
What is net property income from abroad (NPI)?
The difference between the property income that foreigners earn by owning some of our assets and that income that our residents earn from owning foreign assets
What is depreciation?
Is the fall in value of the capital stock during the period through use and obsolescence
Interpret a trend output graph which grows steadily as productive potential increases (5)
- Actual output fluctuates around this trend
- At point A there is a slump
- At point B recovery phase has begun
- At point C there is a boom
- At point D recession is on the way
