Aggregate Output, Prices, and Economic Growth Flashcards
What is GDP?
- Gross domestic product.
- The market value of all final goods and services produced within a country during a certain time period.
How is GDP calculated using the expenditure approach?
The total amount spent on goods and services produced in the country during a time period.
How is GDP calculated using the income approach?
The total income earned by households and businesses in the country during a time period.
What are the two approaches that the expenditure approach to measuring GDP can use?
- The sum-of-value-added method or
- The value-of-final-output method.
How is the sum-of-value-added used to measure GDP?
- Used with the expenditure approach
- GDP is calculated by summing the additions to value created at each stage of production and distribution.
How is the value-of-final-output method used to calculate GDP?
- Used with the expenditure approach
- GDP is calculated by summing the values of all final goods and services produced during the period.
What is nominal GDP a measure of?
Nominal GDP values goods and services at their current prices.
What is real GDP a measurement of?
Real GDP measures current year output using prices from a base year.
What is the GDP deflator?
A price index that can be used to convert nominal GDP into real GDP by removing the effects of changes in prices.
What are the four components of GDP?
- Consumption spending,
- business investment,
- government spending, and
- net exports.
What is the GDP equation?
GDP = C + I + G + (X − M).
What is National Income?
The income received by all factors of production used in the creation of final output.
What is Personal Income?
The pretax income received by households.
What is Personal Disposable Income?
Personal income after taxes.
A fiscal deficit must be financed by some combination of which two things?
- A trade deficit or
- An excess of private saving over private investment.
- (G − T) = (S − I) − (X − M).
What does the IS curve illustrate?
- Investment Saving
- The negative relationship between the real interest rate and levels of aggregate income that are equal to planned expenditures at each real interest rate.
What does the LM curve illustrate?
- “Liquidity preference—Money supply”
- For a given level of the real money supply, a positive relationship between the real interest rate and levels of aggregate income at which demand and supply of real money balances are equal.
What does the short-run aggregate supply curve illustrate?
- Shows the positive relationship between real GDP supplied and the price level, when other factors are held constant.
- Holding some input costs such as wages fixed in the short run, the curve slopes upward because higher output prices result in greater output (real wages fall).
What does the long-run agregate supply curve illustrate?
- Long-run aggregate supply represents potential GDP, the full employment level of economic output.
- Because all input prices are assumed to be flexible in the long run, the long-run aggregate supply curve is perfectly inelastic (vertical).
What causes movement along the aggregate demand or aggregate supply curves?
Changes in the price level.
What are seven examples of things that can shift the demand curve?
- Changes in household wealth,
- Business and consumer expectations,
- Capacity utilization,
- Fiscal policy,
- Monetary policy,
- Currency exchange rates, and
- Global economic growth rates.
What are six examples of things that shift the short-run aggegate supply curve?
- Changes in nominal wages or other input prices,
- Expectations of future prices,
- Business taxes,
- Business subsidies, and
- Currency exchange rates, as well as by the factors that affect long-run aggregate supply.
What four things cause shifts in the long-run aggreagte supply curve?
- Changes in labor supply and quality,
- The supply of physical capital,
- The availability of natural resources, and
- The level of technology.
A recessionary gap occurs when..?
- A recessionary gap occurs when real GDP is less than potential real GDP,
- Causes downward pressure on input prices.
An inflationary gap occurs when..?
- An inflationary gap occurs when real GDP is greater than potential real GDP,
- Causes upward pressure on input prices.
What is stagflation?
- Simultaneous high inflation and weak economic growth
- Can result from a sudden decrease in short-run aggregate supply.
What are six sources of economic growth?
- Increases in the supply of labor,
- Increases in human capital,
- Increases in the supply of physical capital,
- Increasing availability of natural resources, and
- Advances in technology.
The sustainable rate of economic growth is determined by which two things?
- The rate of increase in the labor force and
- The rate of increase in labor productivity.
What is a production function?
- A function that specifies the output of a firm, an industry, or an entire economy for all combinations of inputs.
- Relates economic output to the supply of labor, the supply of capital, and total factor productivity.
What is total factor productivity?
A residual factor, which represents that part of economic growth not accounted for by increases in the supply of labor and capital. Increases in total factor productivity can be attributed to advances in technology.
