GDP

GDP - total value of all finished goods and services produced in the particular country economy, during a year.

Example Poland 595.86 USD Billion in 2019,

National income measure the level of economic activity. Is the monetary value of all goods and services produced in a country during a year.

GNI - is the value of a country final output of all goods and services plus the net factor income earned from abroad. e.g Nike (american company) sold their shoes in Korea that is why the revenue from selling this shoes account for US GNI.

Example: Poland GNI for 2020 was $578.46B. In 2020 growing at an average annual rate of 6.89%.

Net factor income from abroad is the net income gained from other nations. It differ bewteen countryā€™s income earned from abroad and income earned by foreign individulas.

Measuring economic activity by:

  • output method or national output - is the value of all finished good and services produced in the economy.
  • income method - is the value of all factors of production earned income in the economy e.g. wage, capital, interest, profit.
  • expenditure method - the total value of all spendings on goods and services in the economy. Calculate the total spendings on newly produced goods like consumption, investments, government spendings and net exports.

Circular flow of income - shows how national income and economic activity are determined based on economic decision makers for housholds, firms and government.

Leakages/withdraws takes money out of the economy so its savings, taxation, imports.

Injections puts money into the economy so its government spendings, investments, exports.

Real GDP takes into account fluctuations in prices. The values are adjusted for inflation.

Constant prices - value of real GDP and GNI as they were adjusted for inflation.

Current prices actual prices that are collected at the particular time.

GDP deflator - measures the general level of inflation in the economy. Shows how prices are changed over time, because of inflation.

Real GDP per capita - express the real GDP value in terms of the population size. Determine the value of the national income per person. Poland 2021, $17,841

Purchasing power parity - compares the productivity and standars of living between countries based on relative costs of goods and services. Exchange rate needed for people to buy the same quantity of products in different countries using the same amount of money.

Example: if the cappucino in the USA costs 5$ and in Vietnam is 90 000VND. The VND is undervalued against USD because the price in Vietnam is lower when we calculated it on USD. That means PPP adjusted exchange rate.

Business cycle this is the model that describes the fluctuations in the countrys economic activity over time. Hence, creating the long-term trend in the economic growth in the economy.

Boom- level of economic activity rises because of increase of AD.

Peak occurs when the economic activity is at the highest level.

Reccesion is the fall in GDP for two quarters.

Slump - occurs at the bottom of the recesion.

Recovery - occurs when GDP starts to rise, eventually leading to the economic growth.

Features of the GDP and GNI:

Advantages:

  • allows comparison between the countries
  • indicates the average wage/income
  • informs policy makers about economic situation within a country

Disadvantages:

  • overestimate the quality of life
  • do not shows how income is distributed and the disparities
  • does not account improvements in quality of output
  • differences in the varying rates of taxes or costs of living
  • do not shows negative externalities generated by national output