question
What are the 5 main economic goals?
answer
1. Full employment
2. Low Inflation (Price Stability)
3. Higher rate of economic growth (Benchmarks
4. More exports than imports (Viable Payments)
5. Equitable Distribution of Income (Tax System)
2. Low Inflation (Price Stability)
3. Higher rate of economic growth (Benchmarks
4. More exports than imports (Viable Payments)
5. Equitable Distribution of Income (Tax System)
question
What are the inflation BENCHMARKS that trigger economic policy? As well, what are the policy names?
answer
< 2 % = Recession
2.5 - 2.75 % = Sustainable Growth
> 3 % = Exceptional / Unsustainable Growth
2.5 - 2.75 % = Sustainable Growth
> 3 % = Exceptional / Unsustainable Growth
question
What is a business cycle?
answer
A business cycle is a chart listing the economic performance of various country's by their BENCHMARKS
question
What does OECD stand for?
answer
Organization for Economic Operation and Development
question
What is the Inflation Target Band?
answer
The inflation target band is 2-3 % inflation.
question
Complimentary goals?
answer
Economic Growth and Employment
question
What are some issues for accomplished goals?
answer
They can be conflicting. You can not have every goal met.
question
What does GDP stand for?
answer
Gross Domestic Product
question
What does GDP measure?
answer
Economic Activity and Performance as well as any Production.
question
What are the 4 types of goods and how long do they last?
answer
> 5 years = Durable Goods (Fridge, Car, House)
< 2 years = Semi Durable Goods (Clothing, Books)
Non - Durable Goods = Consumables (Food, Gas)
Services = Non tangible items (Barber, Lawyer)
< 2 years = Semi Durable Goods (Clothing, Books)
Non - Durable Goods = Consumables (Food, Gas)
Services = Non tangible items (Barber, Lawyer)
question
What is the equation for value?
answer
(P)rice X (Q)uanity
question
IMPORTANT! What is the definition of GDP?
answer
The value of FINAL goods and services produced in a given economy per year
question
What is a FINAL GOOD?
answer
A final good is the final product before it is sold. Not including purchases made during the production of said item.
question
What is Capital Gain and is it included in GDP?
answer
Capital Gain = Sale Price - Initial Price.
Yes it can be included in GDP however real estate can not.
Yes it can be included in GDP however real estate can not.
question
What is Value Added?
answer
Value Outputs - Value of Inputs at each stage in production
For example Farmer sells wheat to a Mill. What the mill receives for the wheat in flour produced (output) is subtracted by the farmers price received for his wheat (Input) in order to get the VALUE ADDED
For example Farmer sells wheat to a Mill. What the mill receives for the wheat in flour produced (output) is subtracted by the farmers price received for his wheat (Input) in order to get the VALUE ADDED
question
Are all prices received in a production added to GDP or only the final good?
answer
Only the final good is included in GDP
question
What is not included in GDP
answer
1. Buying and Selling of Bonds
2. Illegal activities
3. Underground Economy
4. Second Hand Goods (Already sold as a final product)
2. Illegal activities
3. Underground Economy
4. Second Hand Goods (Already sold as a final product)
question
What is the formula to calculate GDP using the Expenditure Approach?
answer
C + I + G + [X -M]
Consumer Spending (Final Goods and Services)
Investment (Capita goods, Infrastructure, Telecom)
Government Spending (Hospitals, Roads)
(e)Xports
(i)Mports
Consumer Spending (Final Goods and Services)
Investment (Capita goods, Infrastructure, Telecom)
Government Spending (Hospitals, Roads)
(e)Xports
(i)Mports
question
What 5 things are included in the income approach?
answer
1. Wages and Salaries
2. Corporate profits before tax
3. Interest and Misc investment income
4. Net income from farm operations
5. Net income from unincorporated income (Including rent)
2. Corporate profits before tax
3. Interest and Misc investment income
4. Net income from farm operations
5. Net income from unincorporated income (Including rent)
question
What is Gross Investment?
answer
Net Investment + Depreciation
question
Are transfer payments such as welfare and pensions included in Government Spending in the expenditure approach?
answer
No they are not
question
How many Income Sources, Adjustments and GDP does the Income Approach take into account?
answer
5 Income Sources
1. Wages and Salaries
2. Corporate profits before tax
3. Interest and Misc investment income
4. Net income from farm operations
5. Net income from unincorporated income (Including rent)
3 Adjustments
-Add expenses incurred by business not from production
- Add Indirect Taxes (EG Property Tax, Workers Comp, Pensions)
-Subtract Subsidies (Welfare and Handouts)
1. Wages and Salaries
2. Corporate profits before tax
3. Interest and Misc investment income
4. Net income from farm operations
5. Net income from unincorporated income (Including rent)
3 Adjustments
-Add expenses incurred by business not from production
- Add Indirect Taxes (EG Property Tax, Workers Comp, Pensions)
-Subtract Subsidies (Welfare and Handouts)
question
What is used to measure the cost of living?
answer
CPI or the Consumer Price Index
question
How can one calculate CPI?
answer
Current CPI (Base year / Base Year ) * 100
Future CPI (Current Year / Base year) *100
! Assign a value of 100 to Base Year !
Future CPI (Current Year / Base year) *100
! Assign a value of 100 to Base Year !
question
What does Inflation equal?
answer
The Growth Rate Formula
question
Why is the CPI not a perfect measure?
answer
1. It only includes basket items regardless of price changes outside of the basket.
2. New goods are higher priced and doesn't take into account quality of items.
3. CPI Overestimates the cost of living by 0.5 %
2. New goods are higher priced and doesn't take into account quality of items.
3. CPI Overestimates the cost of living by 0.5 %
question
What is indexation?
answer
CPI amount added to inflation
question
What is the GDP Deflator?
answer
It uses final goods and services produced in an economy using a current basket.
question
How to remember Real and Nominal?
answer
Real = Volume
Nominal = Value
Nominal = Value
question
How to calculate GDP Deflator?
answer
Nominal:
P2016 X Q 2016
P2017 X Q2017
Real:
P1991 X Q2016
P1992 Q 2017
P2016 X Q 2016
P2017 X Q2017
Real:
P1991 X Q2016
P1992 Q 2017
question
How to adjust past values to current values with CPI?
answer
Value * (CPI current year / CPI past year)
question
What is the Fisher Effect?
answer
Nominal Interest Rate = Real Rate + Inflation Rate
question
How to calculate Real Interest rate?
answer
Nominal Rate + Inflation rate = Real Rate
question
Real GDP Per Capita (population) calculation?
answer
Final Output / Population= REAL GDP PER CAPITA
question
What makes a country poor?
answer
- No Democracy
- Lack of Education
- Inability to exploit resources
- Lack of trade
- Lack of infrastructure (Investments)
!- Lack of institutional arrangements (mechanisms that alter human behavior)
- Lack of Education
- Inability to exploit resources
- Lack of trade
- Lack of infrastructure (Investments)
!- Lack of institutional arrangements (mechanisms that alter human behavior)
question
REAL GDP / Labour Employed = ?
answer
Productivity
or Q/L
or Q/L
question
What are the determinants of productivity?
answer
1. Physical Capital
2. Human Capital (Educated vs Uneducated)
3. Land and Lack of resources
4. Technology/Knowledge (IncreasingProductivity)
2. Human Capital (Educated vs Uneducated)
3. Land and Lack of resources
4. Technology/Knowledge (IncreasingProductivity)
question
What is the production function?
answer
The relationship between inputs and outputs.
Factors of production and real GDP
Factors of production and real GDP
question
Production Function Equation?
answer
Q = aF(K,L,H,N)
Q = Real GDP | A = State of technology(optional)
F = Function
K = Capital
L = Labor
H= Knowledge
N = Natural Resources
Q = Real GDP | A = State of technology(optional)
F = Function
K = Capital
L = Labor
H= Knowledge
N = Natural Resources
question
What are the 2 types on investment?
answer
1. FDI = Foreign Direct Investment
-takes form of purchases of assets
-foreigners buying existing facilitys
- Foreign Portfolio Investment (Buying bongs and stocks)
2. Education = Investment in Human Capital
- K- 12 is more important than uni
-takes form of purchases of assets
-foreigners buying existing facilitys
- Foreign Portfolio Investment (Buying bongs and stocks)
2. Education = Investment in Human Capital
- K- 12 is more important than uni
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