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26 Cards in this Set
- Front
- Back
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Macroeconomics |
Study of the economy as a whole. Its goal is to explain the economic changes that affect many households/firms/markets simultaneously. |
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Main equation in macroeconomics |
Income = expenditure (Every transaction has a buyer and a seller) |
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Gross domestic product (GDP) |
Measure of incomes and expenditures of an economy "The total market value of all final goods and services produced within a country in a given time period." Measures the value of production, which also equals total expenditure on final goods and services and total income. GDP = C + I + G + NX |
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Market value |
G/S are valued at their market prices. We add the market values of products to give the total value of output in dollars. |
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Final good |
An time bought by its final user during a specified time period |
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Intermediate good |
An item that is produced by one firm and used as a component of a final G/S. Excluding them avoids double counting. |
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What does the circular flow diagram show? |
Equality of income and expenditure
Link between productivity and living standards Y(output) = C(consumption) Y(income)= C(consumption) Therefore, Y(output) = Y(income) Y(output) = C + I + G + NX |
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Why is Y(output) = Y(income) not realistic? |
Because at least some income is tried to be saved by every person = LEAKAGE Leaking out of the circle because it isn't continuing the flow. |
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Disposable income equation |
Disposable income = income - tax Yd = Y - Td + Tp |
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Symbol for direct taxes |
Td |
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Symbol for disposable income |
Yd |
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Symbol for transfer payments |
Tp |
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Equation for NX |
NX = value of X (leakage) - value of M (injection) |
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What does GDP not count? |
- Illegal products - Products produced at home - Doens't incorporate non-market economic goods = GDP FIGURE IS UNDERSTATED |
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Gross national product (GNP) |
GNP = total income of all citizens of an economy |
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Define consumption |
The spending by households on G/S with the exception of purchasing of new housing |
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Define investment |
The spending on capital equipment, inventories and structures, including new housing |
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Define govenrmetn purchasing |
The spending on G/S by local, state and federal governments. Does not include transfer payments because they aren't made in exchange for currently produced G/S. |
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Net foreign income (NFI) |
NFI = inflow - outflow Has 2 components: 1. net factor income (investing factors) 2. net current transfers (money in by immigrants - money out by emigrants) Overall: NFI = net factor income from overseas + net current transfers I.e. the different between what a country exports and imports is equal to the amount of foreign investment. NFI is negative - foreigners have more assets in NZ so money money is leaving NZ than entering it. NFI = GNP - GDP NX = NFI |
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Gross national disposable income (GNDI) (Yd) |
Yd = Y(GDP) + NFI The gross national income plus net current transfers from overseas |
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Nominal GDP |
Vaults the production of G/S at current prices. You can change this to GDP using the GDP deflator. |
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Real GDP |
Values the production of G/S at constant prices. |
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GDP Deflator
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A measure of the price level calculated at a ratio of nominal GDP to real GDP x 1000 Doesn't take into account the distribution of income Tells us the income and expenditure of the average person in the economy. |
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Lorenz Curve |
The measure of an egalitarian society |
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GDP, happiness and standard of living |
High GDP = high standard of living, NOT increased happiness/quality of life |
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Welfare and GDP |
Welfare is NOT included in GDP. - Doesn't tell the difference between constructive and deconstructive G/S - Counts restorative activities (Christichurch rebuild isn't increasing standard of living, it's just rebuilding what we had before) = inaccurate measure of stand of living - Comparison of economies is difficult because of black markets - GDP fails to capture items of quality of life (crime, pollution, leisure) because they can't be quantified. |
