SL IB Economics 3.1 Measuring Economic Activity

Flashcards on measuring economic activity, including national income, GDP, GNI, and alternative measures of well-being.

National income accounting

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

Nominal GDP

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

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; examples include increased government spending, investment, and exports.

Leakages (withdrawals)

Remove money from the circular flow of income and reduce its size; examples include increased savings, taxation, and import purchases.

Consumption (C)

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

Investment (I)

Total spending on capital goods by firms.

Government spending (G)

Total spending by the government in the economy, including public sector salaries and payments for merit and public goods, but not transfer payments.

Net exports (X-M)

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

National Income

The payments (rewards) for the factors of production in a year, including wages from labor, rent from land, interest from capital, and profit from entrepreneurship.

Nominal GDP

Measures the value of production within a country's borders.

Gross National Income (GNI)

Nominal GDP + the net factor income earned from abroad.

Nominal GDP

The actual value of all goods/services produced in an economy in a one-year period without adjustment for inflation.

Real GDP and GNI

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 / the population; shows the mean wealth of each citizen in a country based on the value of GDP.

Real GNI per capita

Real GNI / the population; shows the mean wealth of each citizen in a country based on the value of GNI.

Purchasing power parity (PPP)

A conversion factor that can be applied to GDP and GNI to calculate the relative purchasing power of different currencies.

Business cycle

Refers to the changes in real GDP that occur in an economy over time.

Recession

Occurs when there are two or more consecutive quarters (6 months) of negative economic growth

Lack of information provided on inequality

The distribution of income in an economy is provided as an average (GDP/capita)

OECD Better Life Index, The Happiness Index, The Happy Planet Index

Alternative measures of well-being that have been developed due to the limitations of using national income statistics to measure well-being and compare standards of living.

The Happiness Index

Measures happiness in 10 different areas of a person's life, including psychological well-being, health, time balance, community, social support, education, arts, culture, environment, governance, material well-being, and work.

Happy Planet Index (HPI)

Attempts to measure sustainable wellbeing.