The Wealth of Nations: Defining and Measuring macroeconomic aggregates - Macroeconomic questions

20 important questions on The Wealth of Nations: Defining and Measuring macroeconomic aggregates - Macroeconomic questions

What are the 3 conditions of being unemployed?

1) He/she has no job
2) Has been actively looking for a job (prior 4 weeks)
3) Currently available for work

What is measured by the national income accounts?

The level of aggregate economic activity in a country.

What is NIPA?(def)

A system of national income used by the US government
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What is the aggregate accounting identity?

Production = Expenditure = Income

What are the 4 economic flows that connect households and firms?

1) Production
2) Expenditure
3) Income
4) Factors of production (capital and labor)

What does 'income' represent? (households-firms)

The payments made from firms to households to compensate them for their physical capital of labor

What do the factors of production represent? (households-firms)

The productive resources owned by households and used by firms in the production process.

What are the 5 categories to measure expenditures?

1) Consumption
2) Investment
3) Government Expenditure
4) Exports
5) Imports

What does 'Investment' represent?

The market value of new physical capital bought by domestic households and firms.

What does 'Government expenditure' represent?

The market value of government purchases of goods and services.

What does 'Imports' represent?

The market value of all foreign-produced goods and services that are sold to domestic households, firms and governments.

What is Capital income?

Any form of payment that derives from owning physical or financial capital.
Examples: (house)(stocks, bonds)

What isn't measured by GDP?

1) Depreciation (physical capital)
2) Home Production
3)The underground Economy
4) Negative externalities
5) Leisure (free time, vacations)

What are Negative externalities? Example?

A cost for indirectly connected parties as a result of an economic activity.

Example: noice, pollution,...

What are Positive externalities?Example?

A benefit for indirectly connected party as a result of an economic activity.
Example: education (individual&society)

How to measure Real GDP?

Production Q   x   Market price (base year)

What is measured by the Consumer Price Index?

Changes in the price level of the market basket of consumer G&S purchased by households.
Examples: food and beverage, housing, education,...

How to measure the CPI?


BASKET X (CY)   / BASKET X (BY)     x 100


(Cost basket X using current prices) / (Cost  basket x, using base-year prices) x100

How to measure the Inflation rate?


IFR (Current year) = PI (ny) - PI (oy) / PI (oy)  x 100


(Price Index (new year) - Price Index (old year) ) / Price Index (old year) x 100

How to measure adjusting values?

Value in CY dollars =  PI (CY) / PI (Ytat) x Value Ytat

Ytat = year to adjust to

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