Economics - GDP and Economic Activity Definitions (Macro)

Macroeconomic Objectives

1. Economic growth

2. Low unemployment

3. Low and stable inflation (Price stability)

4. Avoid large trade imbalances (balance of payments stability)

5. Equitable distribution of income

6. Sustainable level of government debt

7. Sustainability

Gross Domestic Product (GDP)

Value of goods and services produced in an economy over a given period of time

Real GDP

GDP adjusted for inflation (a measure of national output)

Economic Growth

Increase in real GDP

Recession

At least two consecutive quarters of negative economic growth

Unemployment

Refers to people who are willing and able to work, but cannot find a job, despite actively looking

Unemployment rate

unemployment rate = unemployed / labour force x100%

Inflation

Sustained increase in the general price level

Deflation

Sustained decrease in the general price level

Balance of Trade

Value of Exports - Value of Imports (X-M)

Gini coefficient

A measure of income inequality based on the Lorenz curve where 0 represents perfect equality and 1 represents perfect inequality

Gross National Income (GNI)

Total value of goods and services produced by a country’s factors of production over a given period of time (GNI=GDP+net income from abroad)

3 Ways to measure GDP

1. Output Approach

2. Expenditure Approach

3. Income Approach

The output approach

Calculate the value of all goods and services produced in the economy (by adding the value added of all firms in the economy)

The expenditure approach

Adds up total spending on all goods and services produced in the economy

GDP = C + G + I + (X-M)

The income approach

Adds up all the income earned by the factors of production in that country (i.e. wages, interest, rent and profits)

Business Cycle

Shows periodic fluctuations of real GDP around a long-run trend