3.1 Measuring Economic Activity DP IB Economics: HL

Flashcards covering key concepts, terminology, calculations, the business cycle, and alternative measures of well-being from the DP IB Economics: HL lecture notes on Measuring Economic Activity.

National income accounting

Measures the economic activity within a country and provides insights into how a country is performing.

Gross domestic product (GDP)

The output of an economy; the value of all goods/services produced within a country's borders.

Nominal GDP

The value of all goods/services produced in an economy in a one-year period, not adjusted for inflation.

Circular flow of income model

Used to illustrate national income and the flow of money, resources, and goods in an economy.

Injections

Add money to the circular flow of income and increase its size (e.g., increased government spending, investment, exports).

Leakages (withdrawals)

Remove money from the circular flow of income and reduce its size (e.g., increased savings, taxation, import purchases).

Expenditure approach

Calculates national income by adding up the value of all expenditures in the economy in a year (C + I + G + (X-M)).

Income approach

Calculates national income by adding up the payments (rewards) for the factors of production in a year (W + R + I + P for wages, rent, interest, profit).

Output approach

Calculates national income by adding up the value of all finished goods/services produced within the economy each year (national output).

Consumption (C)

The total spending on goods/services by consumers (households) in an economy.

Investment (I)

The total spending on capital goods by firms.

Government spending (G)

The total spending by the government in the economy, including public sector salaries and provision of goods, but not transfer payments.

Net exports (X-M)

The difference between the revenue gained from selling goods/services abroad (exports) and the expenditure on goods/services from abroad (imports).

Nominal Gross National Income (GNI)

Measures nominal GDP plus the net factor income earned from abroad.

Real GDP

The value of all goods/services produced in an economy in a one-year period, adjusted for inflation.

GDP deflator

A price deflator used to convert nominal GDP/GNI from current prices to constant prices.

Real GDP per capita

Real GDP divided by the population, showing the mean wealth of each citizen and easing comparisons of living standards between countries.

Purchasing power parity (PPP)

A conversion factor that calculates the relative purchasing power of different currencies, helping to make more accurate standard of living comparisons.

Business cycle

Refers to the cyclical changes in real GDP that occur in an economy over time, fluctuating above and below the long-term trend rate of growth.

Peak/boom

A point in the business cycle characterized by increasing/high rates of economic growth, decreasing unemployment, and high confidence.

Recession

Occurs when there are two or more consecutive quarters (6 months) of negative economic growth, with increasing unemployment and low confidence.

Positive output gap

Identified as the growth of real GDP that is above the long-term trend rate.

Negative output gap

Identified as the growth of GDP that is below the long-term trend rate, indicating spare production capacity.

OECD Better Life Index

An index by the Organisation for Economic and Cultural Development (OECD) with 11 variables measuring aspects of citizens' well-being.

Happy Planet Index (HPI)

Measures sustainable well-being by ranking countries on how efficiently they deliver long, happy lives using the earth's scarce resources (calculated as wellbeing × life expectancy / ecological footprint).

Easterlin Paradox

States that happiness and increases in income have a direct relationship up to a point, but beyond that point, the relationship is less evident.