unit 3 part 1 econ

What are the three ways of constructing GDP?

Expenditure approach, Income approach, Production (value

What does GDP measure?

The size of the economy, often expressed as GDP per capita (average income).

What is the expenditure formula for GDP?

GDP = C + I + II + G + (X – M).

What is real GDP?

Nominal GDP adjusted for inflation to measure actual output changes.

What is nominal GDP?

GDP measured at current prices, affected by both output and price changes.

What is the rule of 70?

The number of years for GDP to double ≈ 70 ÷ growth rate.

What is a recession?

A period of negative growth, defined as two consecutive quarters of negative real GDP growth (South Africa’s definition).

What is the multiplier process?

An increase in demand leads to more output, income, and employment, which further increases demand.

What is the consumption function?

C = c0 + c1Yd, where c0 = autonomous consumption and c1 = marginal propensity to consume (MPC).

What is the formula for the multiplier?

k = 1 ÷ (1 – MPC).

What is goods market equilibrium?

The point where output (Y) equals aggregate demand (AD).