Chapter 12: Economic Indicators and Measurements

Question 1

the market value of all final goods and services produced within a nation in a given time period

Answer 1

GDP

gross domestic product

Question 2

a way of evaluating a country’s economy using statistical measures of its income, spending, and output
(used in macroeconomics)

Answer 2

national income accounting

Question 3

what are the three GDP requirements?

Answer 3

1. must be a final product
2. must be produced during the time period, regardless of when sold
3. must be produced within the nation’s borders

Question 4

what are the 4 sectors of GDP?

Answer 4

1. consumption
2. investment
3. government spending (not transfer payments)
4. net exports (negative number on graph)

Question 5

what 3 categories are not measured in GDP?

Answer 5

1. non-market activities
2. underground economy
3. quality of life

Question 6

some productive activities outside of economic markets

ex. volunteer work, performing own home repairs

Answer 6

non-market activities

Question 7

• illegal activities are unreported
• legal activities paid for in cash not always declared
• 8-10% of U.S. GDP
  ex. babysitting

Answer 7

underground economy

Question 8

• 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

Answer 8

quality of life

Question 9

market value of all final goods and services (produced abroad)

Answer 9

gross national product (GNP)

Question 10

GNP minus depreciation f capital stock

Answer 10

net national product (NNP)

Question 11

total income from production of goods and services

Answer 11

national income (NI)

Question 12

income received by all sources

Answer 12

personal income (PI)

Question 13

personal income minus income taxes

- actual income available for consumer spending

Answer 13

disposable personal income (DPI)

Question 14

series of periods of expanding and contracting activity

- measured by increases or decreases in real GDP

Answer 14

business cycle

Question 15

what are the 4 phases of the business cycle?

Answer 15

1. expansion
2. peak
3. contraction
4. trough

Question 16

period of economic growth - increase in real GDP

• jobs easier to find, unemployment drops
• more resources needed to keep up with spending demand

Answer 16

stage 1: expansion

Question 17

• real GDP is highest

- as prices rise and resources tighten businesses become less profitable

Answer 17

stage 2: peak

Question 18

producers cut back and unemployment increases

Answer 18

stage 3: contraction

Question 19

contraction lasting two or more quarters

Answer 19

recession

Question 20

long period of high unemployment and slow business activity

Answer 20

depression

Question 21

stagnation in business activity with inflation in prices

Answer 21

stagflation

Question 22

point at which real GDP and unemployment stop declining

Answer 22

stage 4: trough

Question 23

total amount of products that might be bought at every level

- includes all goods and services as well as purchases

Answer 23

aggregate demand

Question 24

downward sloping
vertical axis: average price of all goods and services
horizontal axis: economy’s total output

Answer 24

aggregate demand curve

Question 25

sum of all goods and services that might be provided at every price level

Answer 25

aggregate supply

Question 26

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

Answer 26

aggregate supply curve

Question 27

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

Answer 27

macroeconomic equilibrium

Question 28

what are the 4 factors that affect the business cycle?

Answer 28

1. decisions made by businesses 2. changes in interest rates 3. expectation of consumers 4. external shocks to the economy

Question 29

- affects suppliers and related businesses - demand slump can lead to decreased production, layoffs - contraction - new technology can raise productivity, demand, employment - expansion

Answer 29

business decisions

Question 30

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

Answer 30

change in interest rates

Question 31

consumer's ideas on prices, business activity, jobs influence chooses - can change aggregate demand - confidence consumes more - raises aggregate demand

Answer 31

consumer expectations

Question 32

economy influenced by events beyond its control ex. natural disasters, infrastructure - conflicts overseas/political decisions made by other countries

Answer 32

external issues

Question 33

measures for predicting changes in the business cycle | - helps government and businesses make good choices

Answer 33

economic indicators

Question 34

measures that usually change before real GDP

Answer 34

leading indicators

Question 35

measures that usually change at the same time as real GDP

Answer 35

coincident indicators

Question 36

measures that usually change after real GDP

Answer 36

lagging indicators

Question 37

real GDP divided by total population (measure of standard living) ** not quality of life, but standard of living **

Answer 37

real GDP per capita

Question 38

what are the 4 factors that influence economic growth?

Answer 38

1. natural resources 2. human resources 3. capital 4. technology and innovation

Question 39

``` ability for a country to have access to - arable land - water - forests - oil - mineral resources also need free market and an effective government ```

Answer 39

natural resources

Question 40

size of labor force multiplied by length of work week

Answer 40

labor input

Question 41

increase in ratio of capital to labor | - providing more and better equipment to each worker increases production

Answer 41

capital deepening

Question 42

efficient use of resources, raise output - reduce time needed to complete task - improve customer service - advances in production lower prices, make capital deepening cheaper

Answer 42

technology and innovations

Question 43

amount of output produced from a set amount of inputs

Answer 43

productivity

Question 44

amount of goods and services produced by one worker in one hour

Answer 44

labor productivity

Question 45

amount produced by a set amount of equipment and materials

Answer 45

capital productivity

Question 46

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

Answer 46

multifactor productivity

Question 47

what contributes to productivity?

Answer 47

1. quality of life (educated, healthy workforce is more productive) 2. technological innovation (new technology helps increase output) 3. energy costs (cheaper power lowers cost of using tools) 4. financial markets (banks, stock markets flow funds where needed)

Question 48

an economy can grow by...

Answer 48

- increasing quantity of resources, labor, capital, or technology - increasing productivity