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Macroeconomics > Ch 9 > Flashcards

Ch 9 Flashcards

1
Q

Free markets work to maximize the wealth of nations through value creation. How is this value created and destroyed?

A

1) some of this created value is consumed quickly (such as strawberries)
2) some of this value is consumed slowly (such as with housing)
3) and some valued is saved

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2
Q

What are final goods?

A

those that are sold to a final user

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3
Q

What are intermediate goods?

A

those NOT sold to a final user

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4
Q

What is the definition of the GDP? (Gross Domestic Product)

A

current market value of all final goods produced within the countrys boarder within the last year

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5
Q

What is the U.S.’s GDP?

A

$17.3 trillion

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6
Q

What is not counted in the GDP?

A

1) Items that dont have sufficient records
2) Items that have gone down to their second owner, otherwise they would be counted twice
3) financial transactions
4) government transfer payments
5) the value of leisure
6) they dont subtract bads

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7
Q

What are government transfer payments?

A

the taking form one person and giving to another, but not in return for any good or service (ex. social security)

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8
Q

What are “bads”?

A

unwanted phenomenon, such as disease, crime and garbage

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9
Q

What did the Keynesians assert?

A

that bads may increase GDP because they increase spending because we pay to lessen their effects. (ex. police) however, they are wrong because they didn’t take in count that if there is more spending on police there would be less money to spend on items such as pizza. So it will all even out.

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10
Q

Whats the expenditure approach?

A

the usual approach in which we add up the current market values of all final goods and services

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11
Q

What is the income approach?

A

the way that the government counts the GDP; which is when you add up all the payments to factors of production (the wages, interest, rents, and profits generated by production)

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12
Q

When does the government gather their data?

A

During taxes

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13
Q

What makes up the Expenditure Approach?

A

1) consumption 70%
2) investment 15%
3) government purchases 20%
4) net exports (negative)

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14
Q

What is consumption?

A

spending by consumers on non durable goods, durable goods, and services (durable goods are those which last at least a year)

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15
Q

What is investment?

A

spending by business on capital, on changes in business inventories, and spending on new residential housing. Note this does not mention stocks or bonds

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16
Q

What are government purchases?

A

spending by all levels of government on goods and services. Note that transfer payments do no fit this definition

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17
Q

What are net exports?

A

exports - imports.

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18
Q

What is the real GDP?

A

The GDP at a fixed price according to the base year. It prevents things like inflation from effecting the output.

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19
Q

What is economic growth?

A

the percentage change in the real GDP; it is the best measure of whether the economy is progressing or regressing; it does not tell the relative well being of individuals in the economy, but the economy as a whole

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20
Q

What is a recession?

A

Two successive quarters (3 month period) of negative growth

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21
Q

What does our economy in the U.S. do?

A

It mostly grows (does not swing up or down)

22
Q

What is the business cycle?

A

it describes the ups and downs of the economy

23
Q

What is an expansion?

A

an increase in the real GDP

24
Q

What is a peak?

A

When the real GDP is at a temporary high

25
Q

What is a contraction?

A

It is when the real GDP falls the economy is suffering and that is a contraction

26
Q

What is a trough?

A

At the trough of the business cycle, the real GDP is at a temporary low

27
Q

What is a recovery?

A

It is when the Real GDP is growing from the trough

28
Q

What is an expansion?

A

When the economy is out of a recession and has almost turned to normal

29
Q

What is considered a strong growth rate?

A

3% but coming out of a recession there needs to be a higher rate

30
Q

What does GDP tell us?

A

the size of the economy

31
Q

What does Per Capita GDP measure?

A

the well being of the people in a country

32
Q

What make sup the per capita GDP?

A

GDP divided by the population

33
Q

How can we measure the well being of people in other countries?

A

Using the per capita GDP and rate conversion

34
Q

To look at the growth and well being of a country over time we use?

A

Real Per Capita GDP

35
Q

Can one person lower or raise a countrys real per capita GDP?

A

Yes, for example on an elevator filled with an adults is combined with a kid, the kid will lower their rate. however, none of the adults will get skinnier

36
Q

What is the best measure that we have?

A

Per Capita GDP

37
Q

What does the Per Capita GDP not take in mind?

A

it does not take in account the distribution of income within a country

38
Q

what percentage is the average American better of than the average Canadian?

A

25%

39
Q

What is the reason as to why some countries have higher incomes than others?

A

economic freedom

40
Q

What is wealth?

A

wealth is a stock, like a lake, your bank account balance , plus the portion of your that you own, plus the portion of the house you own

41
Q

What is income?

A

Income is a flow like a river, how much your paycheck is

42
Q

What does your income reflect?

A

value creation

43
Q

What does your wealth reflect?

A

accumulated past value that has been saved

44
Q

What do we prefer to measure when using GDP?

A

the social gain, but we have to settle for the market price

45
Q

What prices do you use for the GDP?

A

current market prices

46
Q

When is it best to measure value?

A

when value is not distorted by inflation

47
Q

What does the Real GDP reflect?

A

quantity changes, not price changes

48
Q

What do we look at when we are viewing how well the economy is doing over time?

A

Real GDP

49
Q

What do we use when we compare value at a single point and time?

A

GDP (sometimes called current dollar GDP or nominal GDP)

50
Q

We only look at what in Real GDP?

A

growth rates

51
Q

What happens when a country with little economic freedom suddenly grants a new policy opening up their economic freedom?

A

the initial growth rates do to the freedom may be huge compared to mature countries; but that does not mean that the particular policy is correct, only that the direction is correct

Macroeconomics (12 decks)

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