Macroeconomics Flashcards

Flashcards covering key vocabulary and concepts related to macroeconomics, including GDP, GNI, economic growth, and the business cycle.

Macroeconomics

The study of the economy as a whole, including aggregates of demand, supply, producers, government intervention, and consumers.

Origin of Macroeconomics

Emerged when microeconomic theories and policies were insufficient to address societal problems during the 1920s-30s crisis.

John M. Keynes

A British economist who advocated for studying the economy as a whole to understand and address its issues.

Key Economic Indicators Evaluated to Assess a Country's Finances

Economic activity fluctuations, unemployment, inflation, trade balance, sustainable development, and equity of income distribution.

National Income (Y)

Measures the level of economic activity in a country, representing the money value of all goods and services produced within its borders in a year.

Gross Domestic Product (GDP)

The most common measure of national income, representing the value of all final goods produced/sold inside a country’s borders in a year.

Gross National Income (GNI)

A perspective shift emphasizing income received by residents rather than focusing solely on production as framed in Gross National Product (GNP)

Three Methods to Calculate GDP

Output, Income, Expenditure

Output Method (O)

The value of all the final goods produced by firms.

Income Method (Y)

The value of all income earned by selling factors of production (Labor: salaries, Land: rent, Capital: interest, Entrepreneurship: Profits)

Expenditure Method (E)

Measures economic activity by calculating total spending on newly produced goods and services: GDP = C + I + G + (X – M).

Components of Expenditure Method

Consumption, Investment, Government, Net Exports

GDP

Produced inside of a country.

GNI

Earned by the residents of a country.

GNI

Gross national income

GDP

Gross domestic product

GDP Limitations

Not an accurate measure of standard of living because it doesn't account for resource usage or income distribution.

GDP Definition

Measure of the sales of new products in that period of time.

Nominal GDP/GNI

Values of GDP/GNI for a specific year, reflecting the value of output in that year.

Real GDP

GDP adjusted for changes in price levels (inflation), allowing comparisons across different years

Real Values

Adjusted to the price levels of a reference year.

Nominal Values

For a concrete year.

GDP Deflator

A measure of the general level of inflation in the economy, showing the extent of price level changes over time.

Formula for Real GDP

Real GDP = (Nominal GDP) / (GDP deflator)

Real GDP per capita

Real GDP / Population size

Gross National Income per capita

Real GNI / Population size

GDP & GNI per Capita

Values help understand the wealth of a nation better and allow for better understanding of the productivity.

Purchasing Power Parity (PPP)

The exchange rate needed for people to buy the same quantity or basket of goods and services in different countries using the same amount of money.

Business Cycle and Economic Growth

Illustrates the potential national output (potential real GDP) of an economy, as indicated by the long-term trend line in the business cycle

Business Cycle

Describes the fluctuations in the level of economic activity in a country over time.

Boom

A phase in the business cycle when economic activity rises, driven by increased aggregate demand.

Peak

The highest level of economic activity, with low unemployment and high business/consumer confidence.

Recession

A decline in GDP for two consecutive quarters, leading to business failures and rising unemployment.

Slump (or Trough)

The bottom of a recession with low consumption, investment, and net exports, causing negative economic growth.

Recovery

When GDP starts to rise after the trough, increasing employment and confidence levels.

Economic Growth

Occurs when the level of economic activity rises, measured by the value of real GDP for two consecutive quarters.

GDP & GNI and Standard of Living

They are not accurate because they don't account for distribution of income.

GDP & GNI do not Accurately Measure Output

Do not measure non-marketed output, only $ Value, also do not account for Negative Externalities.

GDP & GNI do not Measure Ec. Well-being

They do not show improvement or achievement in terms of Education, life expectancy, nor depict accurately distribution of Income.

Alternative Ways to Measure Well-Being

Including OECD Better life index, Happiness Index and Happy Planet Index.