Chapter 12: Economic Indicators and Measurements Flashcards
the market value of all final goods and services produced within a nation in a given time period
GDP
gross domestic product
a way of evaluating a country’s economy using statistical measures of its income, spending, and output
(used in macroeconomics)
national income accounting
what are the three GDP requirements?
- must be a final product
- must be produced during the time period, regardless of when sold
- must be produced within the nation’s borders
what are the 4 sectors of GDP?
- consumption
- investment
- government spending (not transfer payments)
- net exports (negative number on graph)
what 3 categories are not measured in GDP?
- non-market activities
- underground economy
- quality of life
some productive activities outside of economic markets
ex. volunteer work, performing own home repairs
non-market activities
- illegal activities are unreported
- legal activities paid for in cash not always declared
- 8-10% of U.S. GDP
ex. babysitting
underground economy
- countries with high GDPs have high living standards
- GDP does not show how goods and services are distributed
- GDP does not show what goods are being made or services offered
quality of life
market value of all final goods and services (produced abroad)
gross national product (GNP)
GNP minus depreciation f capital stock
net national product (NNP)
total income from production of goods and services
national income (NI)
income received by all sources
personal income (PI)
personal income minus income taxes
- actual income available for consumer spending
disposable personal income (DPI)
series of periods of expanding and contracting activity
- measured by increases or decreases in real GDP
business cycle
what are the 4 phases of the business cycle?
- expansion
- peak
- contraction
- trough
period of economic growth - increase in real GDP
- jobs easier to find, unemployment drops
- more resources needed to keep up with spending demand
stage 1: expansion
- real GDP is highest
- as prices rise and resources tighten businesses become less profitable
stage 2: peak
producers cut back and unemployment increases
stage 3: contraction
contraction lasting two or more quarters
recession
long period of high unemployment and slow business activity
depression
stagnation in business activity with inflation in prices
stagflation
point at which real GDP and unemployment stop declining
stage 4: trough
total amount of products that might be bought at every level
- includes all goods and services as well as purchases
aggregate demand
downward sloping
vertical axis: average price of all goods and services
horizontal axis: economy’s total output
aggregate demand curve
sum of all goods and services that might be provided at every price level
aggregate supply
almost horizontal when GDP is low
slopes upward as prices increase with rise in real GDP
almost vertical with inflation - no rise in real GDP
aggregate supply curve
aggregate demand = aggregate supply
(aggregate demand/supply curve intersection)
- increase in aggregate demand shifts AD curve to the right
- decrease in aggregate supply shifts AS curve to the left
macroeconomic equilibrium
what are the 4 factors that affect the business cycle?
- decisions made by businesses
- changes in interest rates
- expectation of consumers
- external shocks to the economy
- affects suppliers and related businesses
- demand slump can lead to decreased production, layoffs - contraction
- new technology can raise productivity, demand, employment - expansion
business decisions
rise = borrowing more costly, lower aggregate demand
- decrease household purchases, business investment in capital goods
- promote contraction
- low rates increase home sales - more people quality for mortgage
change in interest rates
consumer’s ideas on prices, business activity, jobs influence chooses
- can change aggregate demand
- confidence consumes more - raises aggregate demand
consumer expectations
economy influenced by events beyond its control
ex. natural disasters, infrastructure
- conflicts overseas/political decisions made by other countries
external issues
measures for predicting changes in the business cycle
- helps government and businesses make good choices
economic indicators
measures that usually change before real GDP
leading indicators
measures that usually change at the same time as real GDP
coincident indicators
measures that usually change after real GDP
lagging indicators
real GDP divided by total population (measure of standard living)
** not quality of life, but standard of living **
real GDP per capita
what are the 4 factors that influence economic growth?
- natural resources
- human resources
- capital
- technology and innovation
ability for a country to have access to - arable land - water - forests - oil - mineral resources also need free market and an effective government
natural resources
size of labor force multiplied by length of work week
labor input
increase in ratio of capital to labor
- providing more and better equipment to each worker increases production
capital deepening
efficient use of resources, raise output
- reduce time needed to complete task
- improve customer service
- advances in production lower prices, make capital deepening cheaper
technology and innovations
amount of output produced from a set amount of inputs
productivity
amount of goods and services produced by one worker in one hour
labor productivity
amount produced by a set amount of equipment and materials
capital productivity
applies to an industry or business sector
- ratio between economic output, labor, and capital units used
- data is compiled for major industries, sectors
- used to estimate productivity of entire economy
multifactor productivity
what contributes to productivity?
- quality of life (educated, healthy workforce is more productive)
- technological innovation (new technology helps increase output)
- energy costs (cheaper power lowers cost of using tools)
- financial markets (banks, stock markets flow funds where needed)
an economy can grow by…
- increasing quantity of resources, labor, capital, or technology
- increasing productivity
