Week 8 - Gross Domestic Product and Economic Growth Flashcards
What is microeconomics?
The study of how households and firms make choices, how they interact in markets and how the government attempts to influence their choices.
What is macroeconomics?
The study of the economy as a whole, including topics such as inflation, unemployment and economic growth.
What is inflation rate?
The percentage increase in the general price level in the economy from one year to the next.
What is unemployment rate?
The percentage of the labour force that is unemployed.
What is economic growth?
The expansion of society’s productive potential, usually measured by the rate of growth in real GDP.
What is a business cycle?
Alternating periods of economic expansion and economic contraction relative to the trend rate of economic growth.
What is expansion?
The period of a business cycle during which total production and total employment are increasing above the trend growth.
What is contraction?
The period of a business cycle during which total production and total employment are falling below the trend growth.
What is a recession?
The period of a business cycle during which total production and total employment are decreasing.
What is gross domestic product (GDP)?
The market value of all final goods and services produced in a country during a period of time.
How is GDP measured?
GDP is measured using market values, not quantities. GDP includes only the market value of final goods and services.
What goods are included in GDP?
GDP includes only the market value of final goods and services. GDP includes only current production. Current production is that which takes place during the indicated time period; GDP does not include the value of used (second-hand) goods.
What is a final good or service?
A new good or service which is the end product of the production process that is purchased by the final user.
What is an intermediate good or service?
A good or service that is an input into another good or service.
What is a transfer payment?
Payments by the government to individuals for which the government does not receive a good or service in return. Not included in GDP.
- Examples: age pensions, unemployment benefits, family benefit payments.
What is the value added method?
An alternative way to calculate GDP. The market value a firm adds to a product.
How is GDP calculated using the value added method?
GDP can be calculated by adding up the value added by every firm involved in the production process of goods and services.
How is net domestic product (NDP) calculated?
Calculated by measuring GDP and subtracting the value of depreciation on capital equipment.
- NDP = GDP – Depreciation
What is gross national income?
Australia’s GDP plus income generated overseas by Australian residents and firms minus the income generated in Australia by non-residents and foreign firms. The total amount of money earned by a nation’s people and businesses.
What is the production method?
Used to measure GDP. The sum of the value of all goods and services produced by industries in the economy in a year minus the cost of goods and services used in the production process, leaving the value added by the industries.
What is the expenditure method?
The sum of the total expenditure on goods and services by households, investors, government and net exports (the value of exports minus the value of imports).
What is the income method?
The sum of the income generated in the production of goods and services, which includes profits, wages and other employee payments, income from rent and interest earned.
What are the components of GDP?
Consumption (C), investment (I), government purchases (G), net exports (NX).
What is consumption (C)?
Spending by households on
o Goods and services
o Not including spending on new houses
