Studied by 14 people
4 Main Macro Objectives
Full employment
Economic Growth
Price Stability
Income distribution
The Expenditure Approach
counts the total spending on final goods and services within a year
Expenditure Approach formula
GDP = C+I+G+(X-M)
Income Approach
counts GDP through the market view of the circular flow of income, adding up all income earned from FOP, wages, interest, rent and profits are all factor payments
Income approach formula
W+I+R+P = C+I+G+(X-M)
Output Approach
seeks to determine the final value of all goods and services produced within a year
identify value at each stage and then the total is then added to the national income number
Output approach formula
GDP = national output = national income = national spending
GDP
Gross domestic product: monetary value of all goods and services produced in a country, geographically and domestically, in a year
GNI
Gross National income: the total domestic and foreign output ina country in a year
Subtracts foreign owned FOP in country and adds income in domestically owned FOP in other countries
Nominal GDP
measures value of current output at current prices
Real GDP
measures value of current output at constant prices, taking inflation into account
What accounts for a higher GNI or GDP
High GDP: significant foreign presence in firms/workers
High GNI: significant workers/firms who send income overseas
GDP formula
Consumption + Investment + Government Spending + Net exports
GNI Formula
GDP + (Factor income flowing in - factor income flowing out)
Real GDP Formula
(Nominal GDP/Price deflator) x 100
Price deflator formula
(Nominal GDP/Real GDP) x 100
What is real GDP/GNI per capita?
per head income
Benefits of GDP/GNI per capita
gives approximate standard of living
shows economic growth of populaton
Producing Power Parity (PPP)
buying power adjusted for local prices in difference economies, used to more accurately assess the standard of living available for a given income
How can national income statistics be used to measure economic wellbeing?
Comparing countries
comparing the standard of living across countries
allows us to recognize economic progress and ideas for further growth
Evaluation of Economic Performance Over Time
Impacts policies made
votes can use these results to assess the effectiveness of current governing approach
business can use info to predict change in market demand
How does GDP underestimate country’s welfare?
increasing life spans
estimated value of black market and parallel market
unpaid work
How does GDP overestimate country’s welfare?
negative externalities
under-reporting the loss of natural resources
What other information on economic wellbeing do national income statistics fail to provide?
composition of output: real GDP values do not communicate the types of production and their value to society
quality of life: trust in law, group participation, life satisfaction
income distribution: unaware if lower income areas are receiving fair income distribution
OECD
Better life index
intergovernmental organization for economic cooperation and development
adds examination of gender disparities: level of satisfaction men and women experience at different indicators
desplays regions at similar rankings
Happiness index
created by UN Sustainable Development Solutions Network
surveys indiviiduals based on their level of happiness
Happy Planet Index
incorporates environmental impact
combines self reporting happiness and life expectancy
environmental impact by determining the amount of natural resources used per capita
The business cycle
used to show the fluctuations of national income in a long term trend
Recession - Business Cycle
two consecutive quarters of declining national output (when GDP declines over 6 months)
Recessionary Trough - Business Cycle
lowest point of a recession
no one knows when this point is hit until growth has resumed
lowest point on GDP line
Recovery - Business Cycle
as GDP line rises from trough
returning to national output value prior recession
Expansion - Business Cycle
economy grows beyond its intial level of output
usually occurs in short bursts
Peak - Business Cycle
when short bursts hit an apex
only observed after another recession begins
Note 
Flashcard (28)