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Macroeconomics > Y1 Macroeconomics > Flashcards

Y1 Macroeconomics Flashcards

1
Q

Output Method (of Calculating GDP)

A

The summation of the final value of all goods and services produced within an economy in a given year.

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2
Q

Income Method (of Calculating GDP)

A

The summation of all factor incomes earned within an economy in a given year.

The four components of factor incomes are wages/salaries, profit, interest, and rent.

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3
Q

Components of Factor Incomes

A

1) Wages/Salaries
2) Profits
3) Interest
4) Rent

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4
Q

Expenditure Method (of Calculating GDP)

A

The summation of the total expenditure on all goods and services produced within an economy in a given year.

Total expenditure is the sum of consumer spending, investment, government spending, and net exports.

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5
Q

Total Expenditure Formula of GDP

A

Y = C + I + G + NX

  • C = Consumption (Consumer Spending)
  • I = Investment
  • G = Government Spending
  • NX = Net Exports (Imports – Exports)
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6
Q

Aggregate Demand Formula

A

AD = C + I + G + NX

The formula for aggregate demand is identical to that of real GDP (expenditure method). So, aggregate demand is equal to real GDP (AD = Y)

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7
Q

Index Value of the Base Year

A

100

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8
Q

Index Number Formula

A

IN = [ (Year X Value) / (Base Year Value) ] x 100

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9
Q

Real GDP

A

The value of GDP after adjusting for inflation.

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10
Q

GDP (Gross Domestic Product)

A

The total value of all goods and services produced within a country in a given year.

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11
Q

Shortcomings of GDP Calculations

A
  • Does not measure the value of illegal activity and informal activity.
  • Does not take into account the value of negative externalities.
  • Does not consider the level of economic inequality in a society.
  • Does not track the value of foreign-earned income.
  • Does not consider the value of foreign direct investment.
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12
Q

GDP per Capita

A

The average level of income for individuals in an economy.

GDP per Capita = (GDP) / (Population)

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13
Q

GNI (Gross National Income)

A

The total income generated by a country’s factors of production in a given year, regardless of where the factors of production are located.

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14
Q

GNI Formula

A

GNI = GDP + Net Factor Income

Net Factor Income = (Income Earned by Workers/Firms from Home Country) – (Income Earned by Foreign Workers/Firms in Home Country)

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15
Q

Advantages of GNI (GNI vs. GDP)

A
  • GNI accounts for the income earned by domestic workers/firms in foreign countries.
  • GNI excludes the income earned by foreign workers/firms in the home country.
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16
Q

Economic Growth

A

An increase in real GDP within an economy in a year caused by an increase in aggregate demand or an increase in long-run aggregate supply.

17
Q

Short-Run Growth

A

An increase in aggregate demand

18
Q

Causes of Short-Run Growth

A
  • Lower Interest Rates
  • Lower Income/Corporate Tax
  • Higher Consumer/Business Confidence
  • Higher Government Spending
  • Weaker Exchange Rate

Each of these changes will increase aggregate demand.

19
Q

Effects of Lower Interest Rates

A
  • Increase in Consumption ( C↑)
  • Increase in Investment ( I↑)
  • Increase in Net Exports ( NX↑)
20
Q

Effects of Lower Income/Corporate Tax

A
  • Increase in Consumption ( C↑)
  • Increase in Investment ( I↑)
21
Q

Effect of Higher Consumer/Business Confidence

A
  • Increase in Consumption ( C↑)
  • Increase in Investment ( I↑)
22
Q

Effect of Higher Government Spending

A
  • Increase in Government Expenditure ( G↑)
23
Q

Effect of Weaker Exchange Rate

A
  • Increase in Net Exports ( NX↑)
24
Q

Long-Run Growth

A

An increase in long-run aggregate supply

25
Q

Causes of Long-Run Growth

A
  • Higher Labor Productivity
  • Higher Investment
  • Larger Size of Workforce
  • Greater Competition
  • Improvements in Infrastructure
  • New Resource Discoveries

Each of these changes will increase long-run aggregate supply.

26
Q

Exchange Rate

A

The difference between a country’s exports and imports.

  • A high quantity of exports relative to imports indicates a weak exchange rate.
  • A low quantity of exports relative to imports indicates a strong exchange rate.
27
Q

Benefits of Economic Growth

A
  • Higher Disposable Incomes
  • Higher Employment Rates
  • Higher Corporate/Firm Profits
  • Higher Government/Tax Revenue
28
Q

Drawbacks of Economic Growth

A
  • Higher Inflation (Lower Purchasing Power)
  • Higher Income Inequality
  • Greater Environmental Costs
  • Current Account Deficit (Negative Net Exports)
29
Q

Unemployed Individual

A

Any individual of working age who is willing and able to work and actively seeking work, yet is not employed.

30
Q

Unemployment Criteria

A
  • Working-Age Individual
  • Willing and Able to Work
  • Actively Seeking Work
  • Currently Not Employed

Macroeconomics (5 decks)

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