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Econ chapt 8
| Question | Answer |
|---|---|
| Gross Domestic Product (GDP) | Measures the total value of all final goods and services produced within a country's borders annually. Can be calculated in nominal terms (current prices) or real terms (adjusted) Used to gauge the health of an economy |
| Business Cycle | Alternating periods of economic Expansion and Recession |
| Expansion | Period where total production and employment are increasing |
| Recession | Period were total production and employment are decreasing |
| Economic Growth | The Economy's ability to produce increasing quantity amounts of goods and services Slow economic growth cannot raise living standards |
| Inflation Rate | Percentage increase in the price |
| Nominal GDP | Current the value of g's and s's evaluated at current year prices |
| Real GDP | Base the value of final goods and services evaluated at base year prices |
| Potential GDP | The level of GDP attained when all firms are at capacity |
| Final Good/ Service | Amount spent by a final user |
| Intermediate Good/ Service | Inputs into another good or service ex: tire on a truck |
| Double Counting | counting goods and services - that was not made domestically - at each transaction counting things already sold once (used items) Considered bad |
| Production and Income | Measuring one is measuring the other because everything produced and sold is income for someone |
| Circular Flow and Measurement of GDP | Tracks the flow of production between goods and services |
| Transfer Payments | Payments the Gov't makes to households without receiving a good or service in return Come from taxes Considered a tax used to buy goods and services |
| Financial System | Takes the savings of the households and lends that money to the Gov't and Firms for the production of goods and services |
| GDP Equation | y= C + I+ G +NX Y = GDP C= Consumption I= Investment G= Gov't Purchases NX= Net exports |
| Consumption | What households spend on goods & services Durable Goods (cars/ furniture) vs. Nondurable Goods (food/clothing) The largest component of GDP |
| Investment | What firms spend to upkeep or increase production Business fixed: New developments/ renovations Residential: New houses Changes in Business Inventories: Goods that have been produced but not sold |
| Gov't Purchases | What federal, state, & local gov't spend on goods and services Does not include transfer payments Gov't Consumption: teacher salaries/ office supplies Gov't Investment: highways and military bases |
| Net Exports | Exports - Imports Focuses on domestic production |
| Calculating Value Added | Value of the New product - Value added from the Previous product |
| GDP Shortcomings: Types of Production omitted from the GDP Measurements | 1) Household Production: 2)Underground Economy: |
| Household Production | Ppl within the household who perform domestic duties are not paid, but non household ppl would be paid |
| Underground Economy | Buying and selling of g's and s's that are hidden from the Gov't to avoid taxes/ reglations/ Informal sector |
| Calculation of GDP per capita | GDP/ Population = GDP per capita - represents different standards of living in various countries |
| Calculation of Real GDP | (Real GDP yr 2 - Real GDP yr1 )/ Real GDP yr 1 x 100 Real GDP variables are found through the expenditures (price x qty) of each product for each year |
| GDP Deflator | Measures the price level/ avg prices of g's and s's in the economy |
| GDP Deflator Calculation | Nominal (current) GDP/ Real (base) GDP x100 |
| Gross National Product (GNP) | Production performed by citizens of a nation both national and internationally |
| Personal Income | Ubcome received by households & includes transfer payments |
| Disposable Personal Income (DPI) | personal income - personal tax payments = DPI measures the amount that households can spend or save |
| Gross Domestic income (GDI) | Measures production through amount of income Better way to measure a reccession |
Created by:
seyseyHU