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Econ Ch 3

QuestionAnswer
GDP market value of the final goods and services produced within a country in a given time period.
Market value the prices at which items are traded in markets.
Final goods and services an item that is bought by its final user during a specified time period. Apple iPad
intermediate good an item that is produced by one firm, bought by another firm, and used as a component of a final good or service. Apple M1 chip
double counting If we were to add the value of intermediate goods and services produced to the value of final goods and services, we would count the same thing many times. The value of an iPad already includes the value of the chip inside it.
Purchase of a secondhand good e, a used car or existing home—isn’t part of GDP. It was part of GDP in the year in which it was produced.
Produced Within a Country goods and services that are produced within a country count as part of that country’s GDP.
in given time period GDP measures the value of production in a given time period. normally either a quarter of a year—called the quarterly GDP data—or a year—called the annual GDP data.
Households and Firms Households sell and firms buy the services of labor, capital, and land in factor markets. Firms’ retained earnings—profits that are not distributed to households—are part of the household sector’s income.
total income (aggregate income) You can think of retained earnings as being income that households save and lend back to firms.
consumption expenditure The total payment for consumer goods and services.
Investment The purchase of new plant, equipment, and buildings, and additions to inventories.
government expenditure Governments buy goods and services from firms
imports buy goods and services from the rest of the world—
exports Firms in the United States sell goods and services to the rest of the world
net exports The value of exports (X) minus the value of imports (M)
total expenditure—aggregate expenditure equals consumption expenditure plus investment plus government expenditure plus net exports.
aggregate income equal to the total amount paid for the services of the factors of production used to produce final goods and services—wages, interest, rent, and profit.
Domestic product is production within a country. ex: nike from factories that own in vietman but part of vietmans domestic product
Gross before subtracting the depreciation of capital.
net after subtracting the depreciation of capital.
Depreciation the decrease in the value of a firm’s capital that results from wear and tear and obsolescence.
gross investment The total amount spent both buying new capital and replacing depreciated capital
net investment Net investment equals gross investment minus depreciation.
Gross investment one of the expenditures included in the expenditure approach to measuring GDP.
Gross profit which is a firm’s profit before subtracting depreciation, included in mesuring gpd
The expenditure approach he sum of consumption expenditure (C   ), investment (I  ), government expenditure on goods and services (G  ), and net exports of goods and services .
Personal consumption expenditures expenditures by U.S. households on goods and services produced in the United States and in the rest of the world. They include goods such as soda, books, banking,legal advice, TVs and microwave ovens.
Government expenditure on goods and services the expenditure by all levels of government on goods and services such as national defense and garbage collection not transfer payments
Net exports of goods and services the value of exports minus the value of imports.
Gross private domestic investment expenditure on capital equipment and buildings by firms and the additions to business inventories. It also includes expenditure on new homes by households.
The income approach measures GDP by summing the incomes that firms pay households for the services of the factors of production they hire—wages for labor, interest for capital, rent for land, and profit for entrepreneurship.
The sum of factor incomes equals net domestic income at factor cost.
GDP equals net domestic income at factor cost plus indirect taxes minus subsidies plus depreciation.
Compensation of employees the payment for labor services. It includes net wages and salaries (called “take-home pay”) that workers receive plus taxes withheld on earnings plus fringe benefits such as Social Security and pension fund contributions.
The factor incomes sum to net domestic income at factor cost, which is the cost of the factors of production used to produce final goods.
The expenditures on final goods are valued at market prices, which differ from factor cost because of indirect taxes and subsidies.
indirect tax tax such as a sales tax or a tax on gasoline. Market price includes indirect taxes, so market price exceeds factor cost.
subsidy a payment, such as a farm subsidy, by the government to a producer. Subsidies make market price less than factor cost.
To get from factor cost to market price we add indirect taxes and subtract subsidies and get net domestic income at market prices.
Total expenditure gross number because it includes gross investment.
Real GDP is the value of final goods and services produced in a given year when valued at the prices of a reference base year.
Nominal GDP the value of final goods and services produced in a given year when valued at the prices of that year.
Calculating Real GDP For each item, we multiply the quantity produced in 2012 by its price in 2012 to find the total expenditure on the item. sum the exp to find nominal GDP, which in 2012 is $100 million. Bc 2012 base year, both real GDP and nominal GDP equal $100 million.
Created by: user-2051748
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