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Output and Growth
Terms in this set (37)
What is the value of output, the expenditure, and the total amount of income?
What is a relationship that is true in all economies?
National output = national income = national expenditures
What is the national output?
The total value of output of goods and services produced.
What is the national income?
The total amount of income earned by factors of production, including entrepreneurs, in a macroeconomy.
What is the national expenditure?
What people or organizations spend on good and services provides income for the people.
What are three ways to measure the GDP?
The output, income, and expenditure method.
Why do the different measurements for the GDP never add up exactly to the same amount?
Economic activity is complex. Flows of output, incomes and expenditures between many millions of different people cannot be measured exactly. Also because of tax avoidance.
How does the output method work?
Only final outputs are counted. Economics only add up the value added by each firm at each stage of production. GDP is therefore a measure of the total value added to resources in an economy through the production of goods and services.
What is the gross value added?
It is the market value of firm's output of goods or services less the value of the inputs used in the production of outputs.
How does the income method work?
The total income earned from the production of goods and services within the economy. They break the income down into profits, wages etc.
What isn't counted in the income payment?
Welfare payments, unemployment benefits and pensions because they are unearned incomes: there is no productive activity involved.
What is the expenditure method?
The value of output can be measured by adding up the total amount spent on all final goods and services. Spending on imported goods and services must be deducted because they aren't profits or other income for domestic firms and residents.
What is the difference between real and nominal GDP?
Because GDP is measured in monetary values it will rise with inflation. Real GDP measures changes in total output assuming prices are unchanged over time
How do GDP statistics help governments?
It can make better decisions on economic policies. It allows comparisons of the standard of living, it allows us to compare the standard of living in different countries.
What is economic growth?
There has been an increase in real GDP. An increase in output can improve the liging standards by providing them with more goods and services and more incomes to enjoy.
How can growth be achieved?
Discovering more natural resources, investment in new capital and infrastructure, technical progress, increasing the amount and quality of human resources, reallocating resources.
What is the economic cycle?
It refers to the pattern of recurrent ups and downs (or cyclical fluctuation) observed in real GDP growth over time.
What is Growth?
Also called expansion. Economic activity is expanding rapidly. New businesses are formed, increased sales and profits.
What is an economic Boom?
Also called peak. Aggregate demand, sales and profits peak, rapid inflation as demand exceeds the amount of goods and services, there is a shortage of FoP, raised interest rate to control inflation,
What is an economic recession?
Also called downturn, Slowdown in economic activites, economic growth negative, demand begins to fall, sales and profits decline, firms cut back heir production, unemployment rises, rate of inflation declines
What can the government do during a recession?
Increase public spending, cut taxes and reduce interest rate to encourage consumer borrowing and spending
What is an economic recovery?
Also called upturn. Business and consumer confidence start to recover, spending rises, firms increase their output and employ more, boosting consumer spending further
What is a U-shaped recession?
It is a prolonged slump
What is a V-shaped recession?
A short-lived contraction in the economy followed by rapid and sustained economic recovery
When is a recession declared?
IF there is negative growth in its GDP for more than two successive three-month periods.
What is the definition of a recession?
A significant decline in economic activity soread across the country lasting more than a few months, normally visible in falling real GDP growth, real personal income, employment, industrial production and wholesale-retail sales
What are the positive effects of growth?
Greater availability of goods and services to satisfy consumer needs and wants; Increased employment opportunities and incomes; Increased sales and profits and increased business opportunities; Low and stable inflation, if growth in output matches growth in demand; Increasing tax revenues; Improved living standards and economic welfare
What are the negative effects of growth?
Technological progress may replace workers, More production in unnecessary goods, using scarce resources, more pollution, unequal distribution of income and wealth
What doesn't GDP measure?
Atmosphere, Environment, Efficiency of infrastructure, Governance, Stability, Social capital, Health, doesn't directly measure standard of living, It's not easy to measure, distribution, Doesn't show what people can buy, excludes unpaid work
Why isn't the GDP per capita good either?
You can't see what people could buy, equality of distribution, excludes unpaid work, no environment
What are economies concerned doing in the long term?
Expanding its productive potential
What does the Gross National Happiness Index take into account?
Psychological well-being, Health, Education, Time use, Cultural diversity and resilience, good governance, community vitality, ecological diversity and resilience, living standards
What is the goal of the GNH?
Government should maximize GNH
What are the Four Main Objectives of Government Macroeconomic Policy?
Strong Economic growth, Keeping Inflation Low, Reducing unemployment, equilibrium in the balance of payments
What is economic growth?
It is an increase in the productive potential of an economy
Why is there actual growth?
Rise in Aggregate demand, incease in aggregate supply, it tends to fluctuate up and down
How is long run growth shown??
An increase in the trend rate of growth. The trend rate of growth is the average rate of economic growth over a period of both economic booms and slumps. It rises smoothly rather than fluctuating like actual economic growth.
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