38 Questions
What does real GDP measure?
Actual physical volumes of economic activity
What is nominal GDP?
GDP measured in current prices
What is the difference between nominal and real GDP?
Changes in prices of economic activity
What do we compare in the example of Kelewele and Pure water?
GDP between 2010 and 2014
What is the growth rate of nominal GDP between 2010 and 2014?
80%
What is the price of Kelewele in 2014?
GHC 10
What is the quantity of Pure water in 2014?
60
What is the total value of GDP in 2014?
GHC 320
What is the effect of private savings equaling private investment on the current account?
It equals the government budget deficit
What represents the twin deficit in the given equation?
S - I = CA - (T - G)
What is the result of a government running a budget deficit without excess savings from the private sector?
Current account deficit
How is GDP per capita typically calculated?
GDP / population
What does GDP calculate?
The level of economic activity within an economy
What is the current status of Ghana's economy?
Lower middle income country
What is the equation S - I = CA - (T - G) describing?
The twin deficit
What is a common interpretation of a higher GDP per capita?
A higher ability to meet basic needs and more
What is the current account affected by?
The excess of private savings over private investment
What is a limitation of using GDP as a measure of economic wellbeing?
It does not account for distributional issues
What is an example of a non-welfare element that adds to GDP?
High military spending
What is the purpose of calculating GDP per capita?
To measure the economic performance over time
What is an issue with using GDP as a measure of economic wellbeing if only one person owns all the economic resources?
It does not account for the distribution of income
Why might GDP not accurately reflect the standard of living in a country?
Because it includes non-welfare elements, such as high military spending
What is the main goal of fiscal policy?
To influence the level of economic activity
What does the reading of the budget statement represent?
An announcement of government fiscal policy
What are the two types of fiscal policy?
Expansionary and contractionary policy
What is the primary tool used in fiscal policy?
Government spending and/or taxes
What is the role of government in fiscal policy?
To influence the level of economic activity
What is the impact of fiscal policy on the economy?
It influences the level of economic activity
What is the primary objective of fiscal policy?
To influence the level of economic activity
What does fiscal policy involve?
Changes in government spending and/or taxes
What does economic growth relate to?
Long-term changes in real GDP
What can economic growth be defined as?
Expansion of the country’s potential GDP
What is economic growth in terms of production?
Sustained expansion in the production of goods and services
What is the time frame of economic growth?
Long-term
What is economic growth related to?
National output
What is economic growth an expansion of?
The country’s potential GDP
What is the nature of economic growth?
Sustained and long-term
What is the result of economic growth?
Increased production of goods and services
Study Notes
The Twin Deficit
- The equation S - I = CA - (T - G) states that the excess of private savings over private investment finances the current account and the government budget deficit.
- If private savings equal private investment, then the current account equals the government budget deficit, i.e., T - G = CA.
Economic Performance Over Time
- GDP per capita (per capita income) is calculated as GDP / population.
- Ghana is now a lower middle-income country.
Economic Activity or Economic Wellbeing?
- GDP calculates the level of economic activity within an economy.
- Some use GDP as a measure of economic wellbeing, as higher GDP per capita means higher income and the ability to meet basic needs.
- However, there are limitations to using GDP as a measure of economic wellbeing, including:
- Distributional issues: GDP does not account for income inequality, e.g., if only the president owns all the economic resources.
- Non-welfare elements: high military spending may increase GDP but does not improve standard of living.
Real vs Nominal GDP
- Real GDP measures actual physical volumes of economic activity, excluding changes in prices.
- Nominal GDP is the cedi value of all economic activity, including changes in both physical quantities and prices.
- The difference between the growth of nominal and real GDP is solely due to changes in prices.
Meaning of Economic Growth
- Economic growth relates to long-term changes in real GDP.
- It can be defined as the expansion of a country's potential GDP or national output.
- It is a sustained expansion in the production of goods and services in an economy over time.
Fiscal Policy
- Fiscal policy refers to changes in the level of government spending and/or taxes meant to influence the level of economic activity.
- Reading of the budget statement is an announcement of government fiscal policy.
- Fiscal policy may be expansionary or contractionary.
This quiz covers the concept of the Twin Deficit in economics, specifically the relationship between private savings, private investment, current account, and government budget deficit.
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