Overall Level Of Economic Activity- Ib

Front 1

Macroeconomics

Back 1

The study of a nation's economy

Front 2

Five Macroeconomic objectives

Back 2

1. Economic growth (stable increase in national output)
2. Employment (low unemployment rate)
3. Price stability (low and stable inflation rate)
4. External stability (balance of payment positions between countries)
5. Income distribution (Equitable distribution of income)

Front 3

Problem with the Basic Flow Income Model

Back 3

We know that the income gained by households will not all be spent a suggested in the basic model.

Front 4

Government Sector

Back 4

Leakage- Taxes

Injection- Government Spending

Front 5

Foreign Sector

Back 5

Leakage- Imports

Injection- Exports

Front 6

Banking/ Financial Sector

Back 6

Leakage- Saving
(means not not all income will be spent on expenditure of goods and services= less produces= less FOP purchase= less output)

Injection- Investment

Front 7

Gross Domestic Product (GDP)

Back 7

The value of all final goods and services produced within an economy in a given time period.

Front 8

Methods to calculate GDP

Back 8

1. Output Method
2. Income Method
3. Expenditure Method

Front 9

Output Method

Back 9

The sum of the value of all final goods and services produced by an economy. (So the sum of all goods and sercives produced in the three different sectors; Primary, Secondary and Tertiary)

Front 10

Income Method

Back 10

The sum of the value of all incomes earned in an economy.

Front 11

Expenditure Method

Back 11

The value of all spending on goods and services in economy. (consumer spending + government spending+ firm spending as Investment)

Front 12

Gross National Product (GNP)

Back 12

Because of limitations of GDP which only calculates domestic assests not considering firms abroad of domestic TNCs.

GNP is the total income earned by an economy regardless WHERE the income is earned.

Front 13

Net National Income (NNI)

Back 13

Over a year (1 GDP value) Capital stocks will lose its value due to age, wear and tare etc.. =DEPRECIACITION, and NNI= GDP- Depreciation

Front 14

Nominal GDP

Back 14

Is the total value of all final goods and services produced in an economy over a year at CURRENT PRICES.

Front 15

Real GDP

Back 15

Nominal GDP which has been adjusted to inflation.

Front 16

Uses of Statistics

Back 16

1. Growth is an objective- to check growth (=national output)
2. Governments to create policies
3. Economists to make models and predict future.
4. Firms to predict Future.
5. To compare living Standards.
6. Compare to other Countries

Front 17

Limitations to Statistics

Back 17

1. Inaccuracy
2. Under- Recorded activities not included (DIY, Black market)
3. External Costs (cutting trees) not included
4. Living standards could decrease (people work longer, volunteering not encouraged)
5. Consumption of goods (capital goods arent consumed by consumers so dont increase living standards.

Front 18

Green GDP

Back 18

Considers environmental costs included in GDP
green GDP= GDP-environmental costs of production

(e.g. costs of health care production needed because of air pollution)

Front 19

Recovery (BC)

Back 19

- economic expansion
- increase in AD therefore in output
- more labour, less unemployment

Front 20

Boom (BC)

Back 20

Unsustainable as country is near its potential output

Front 21

Recession (BC)

Back 21

- two consecutive quarters of negative real GDP growth
- less spending and less AD
- more unemployment

Front 22

Through (AD)

Back 22

- Low point
- Output can't sink lower because still consumption needed
- Lower interest rates, more investments and country enters RECOVERY