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Unit 9, Consequences of inflation, National Income, Aggregates, Net…
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National Income
National income is defined as the money value of all the final goods and services produced in an economy during an accounting period of time, generally one year
Is the sum total of factor incomes earned by normal residents of a country during the period of an accounting year.
The growth rate of an economy is measured primarily by the rate at which the real national income is growing
Aggregates
GDP: GDP is the sum of money values of all final goods and services produced within the domestic territories of a country during an accounting year
GNP: Defined as the value of all goods and services produced during a specific period usually one year plus incomes earned abroad by the nationals
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Net National Product
National Income is calculated by deducting indirect taxes from the Net National Product (NNP) and adding subsidies.
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Degrees of Inflation
Hyperinflation refers to very high rates of inflation that are out of control, causing average prices in the economy to rise very rapidly
Case in point: Hyperinflation in Zimbabwe
Deflation is the sustained fall in the general price level in an economy over time, i.e. the inflation rate is negative
Case in point : Swine flu H1N1
Stagflation: A condition of slow economic growth and relatively high unemployment - a time of stagnation - accompanied by a rise in prices, or inflation.
Defining Business Cycle
The business cycle is the periodic but irregular up-and-down movement in economic activity, measured by fluctuations in real gross domestic product (GDP) and other macroeconomic variables.
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Real and Nominal GDP
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Real GDP refers to the current year production of goods and service valued at prices of the year of comparison
Causes of Inflation
Demand-Pull Inflation
Results from an increase in aggregate demand at full employment level which exceeds the supply of goods at current prices.
Reasons:
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- Increase in the money supply
- Increase in Government purchases
- Increase in marginal propensity to consume
Cost-Push Inflation
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Reasons:
- An increase in wage rates
- An increase in the prices of raw materials
Measuring Inflation
Different Indices – RPI, CPI, WPI
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