Definitions🪙
GDP (Gross Domestic Product)
The total output produced within a country’s border.
What is income inequality?
The uneven distribution of income between members of the society
Define Incidence
the extent to which the producer, a consumer or both bear the tax burden.
What are the two types of economy?
•Closed economy: an economy that does not trade with other economies
•Open economy: an economy that is involved in trade with other economies
What does GDP stand for?
Gross Domestic Product
Gross value
total value
Why do we prefer a low Gini coefficient?
Because the higher the Gini coefficient is, the further away from equality we are.
Reasons for government microeconomic intervention
- Free rider problem
- overconsumption of merit good
- underconsumption of demerit good
What does the circular flow of income show?
It shows how income, spending and output move around an economy
What are the four components of GDP?
Consumer Spending
Investments
Government spending
Net Exports
Demerit goods
Demerit goods are goods that are considered for a consumers and tend to be over provided, therefore over consumed in the free market. This is due to information failure.
Policies to re-distribute income and wealth
Minimum wage
Transfer Payment
Progressive tax
2 Key Characteristics of Public goods
non-rival and non-excludable, available to all members of society
How many injections and withdrawals are there in total?
What is "Net Exports"
The value of its exports - the value of its imports
Maximum price
a fixed price that cannot be exceeded (aka price ceiling)
How does income inequality affect economic growth?
It slows down the economic growth by increasing poverty and unemployment.
What is the buffer stock scheme
a type of agreement designed to limit price fluctuations.
Explain the 3 injections.
•Investment (I). Money invested by firms into purchasing capital stock.
•Exports (X). Money coming from abroad to buy domestically produced goods.
•Government spending (G). Government welfare benefits, spending on infrastructure.
What is the difference between Nominal GDP & Real GDP?
Real GDP takes inflation into consideration when calculating final GDP, where Nominal does not take it into consideration.
Gini coefficient
a numerical measure of income inequality
Economic reasons for inequality of income and wealth
•A lack of formal employment opportunities (particularly for young people with special skills)
•Poor vocational training.
•Lack of investment in the education and health sectors
Give 3 examples of the Provision of information.
•Advice on non-prescription medicines
•Nutrition and allergy information on food packaging.
•Compulsory information on cigarette packets
•Public health announcements and campaigns
Explain the 3 withdrawals.
•Savings (S) (money not used to finance consumption, e.g. saved in a bank)
•Imports (M) (money sent abroad to buy foreign goods)
•Taxes (T) (money collected by government, e.g. income tax and VAT)
3 Methods of measuring GDP
1.The output method: calculating the total production of goods and services of the country
GDP=Final revenue -total cost of production
2.The income method: totalling all the incomes earned in producing the country’s total output
GDP = rent + wages + interest + profit
3.The expenditure method: totalling all the spending on the country’s output
GDP=C+I+G+(X-M)