Chapter 12: Evaluating the Economy Study Guide Flashcards
What is Gross Domestic Product (GDP)?
The total market value of all FINAL goods and services produced within a country’s borders in 1 year
How is GDP calculated?
Multiply all FINAL goods and services produced in 1 year by their prices. Then, ADD them up to go the total dollar value of production
GDP is a measure of final output. FOUR types of goods are excluded:
- Intermediate goods - goods used to make other products already counted in GDP
- Secondhand Sales - sales of used goods
- Non-market transaction - economic activities that don’t generate expenditures
- Underground economy - economic activities that aren’t reported in market for legal or tax collection purposes
Read each statement below and answer YES or NO to indicate whether you think the good or service is counted in the GDP
1. You clean out the basement of your house
2. Your mother buys flour and sugar to make bread
3. The bakery in town buys flour and sugar to make bread
4. The bakery sells loaves of bread
5. You buy new tires for your bicycle
- NO
- YES
- NO
- YES
- YES
Why is GDP the most useful statistics we have?
Because it tells use how the economy is performing.
The things that GDP DOES NOT tell us are (Hint there’s 4):
- Composition of output - tells us nothing about types of products being produced
- Quality of life - production may have a negative impact on the environment
- Non-market activities - doesn’t count work around house
- Improved product quality - doesn’t keep track of changes in product quality
What is disposable personal income? Why is it important? And What is it also known as?
- Total amount of money available for an individual to spend/save after taxes have been paid (smallest measure of income)
- It’s important because it shows the actual money we are able to spend
- It is also known as net pay
What is personal income also known as?
Gross pay
List the FOUR sectors that make up the GDP
- Household
- Business/investment
- Government
- Net foreign
Explain the consumer/household sector.
- The LARGEST sector of the economy
- All people who occupy a house, apartment, or room that constitutes separate living quarters - include related family members and all others.
Explain the business/investment sector.
- proprietorship, partnerships, corporations
- responsible for producing nation’s output
- income comes from retained earnings (profits not paid out to owners)
Explain the public/government sector.
- local, state, federal levels of government
- receives its income from indirect business taxes, corporate income taxes, Social Security contributions, and personal individual income taxes
Explain the (export-import) sector
- the foreign sector buys many US goods AND supplies many products to the US
- these purchases are called net exports of goods and services
- (x-m) to reflect the difference between exports and imports
- does NOT have specific source of income
What is the output-expenditure model?
GDP = C (consumer) + I (business) + G (gov.) + (x-m)
What is the 2 reasons population is important to the economy?
- country’s population is the source of its labor, one of the 4 factors of production
- population is the primary consumer of the nation’s output and has a direct effect on how much is produced
When was the first census? How big was the population then?
1790 - 3.7 million population
What was the most populous state at that time? What was the reason?
Virginia (747,000) b/c slaves
What was the least populous state at that time?
Delaware - 52,000
Define census. Why is it called decennial census?
An official count of all people living in US includes place of residence occurs every 10 years (decennial census)
What is the difference between urban population and rural population?
Urban - 2500+ people
Rural - less than 2500 people
What is the rate of population growth today?
1%
What is the average household size today?
2.6
Population shift began in the 1970’s with a migration to what parts of the US?
Western and Southern parts
Explain some consequences of population growth.
- If population grows faster than output, a country can have more mouths to feed
- Population grows too slow, there may not be enough workers to sustain economic growth
- a growing population puts more demand on resources
What is infrastructure?
- basic physical and organizational structures and facilities (e.g., buildings, highways, mass transits and power supplies) needed for operation of a society or enterprise
Who are the baby boomers?
Those born during high birthrate years. (1946-1964)
What is a population pyramid?
Type of bar graph that shows the breakdown of population by age and gender (middle bulge = baby boomers)
What is going to be the impact of the baby boomers on the economy?
- reach retirement age - collect pensions, social security, medicare
- these are transfer payments
- place a heavy burden on younger and smaller working population
- see this with the dependency ratio
What is the dependency ratio?
Ratio of population under 15 and over 65 to population age 15 to 65
What is the ORDER of ethnicity in the US according to 2000 census?
- White
- African
- Hispanic
- Asian
- Native
What are the 3 factors that affect population growth
Demographers - studies growth, density and other characteristics of the population
1. fertility rate - rate at which # of births in a pop. offsets US rate; barely above replacement pop. rate
2. life expectancy - average remaining life span of a person who’s reached a given age - ~77.7 - 83.9 yrs.
3. Net immigration - overall change in population caused by people moving in and out of the country - rate is 1,040,000 in and 160,000 out
What are some challenges for future population?
- age composition of future population
- People will reach retirement
- increase in in medicine, medical facilities demand
What is poverty threshold?
Annual dollar (benchmark) used to determine poverty
What are poverty guidelines?
Government guides used to determine eligibility for food stamps, Head Start, etc
What is the most recent poverty rate for the country?
15% - 47 million
What is the Lorenz Curve?
graph representation of distribution of income or of wealth
- Lorenz developed in 1905 for representing inequality of wealth distribution
Explain the 9 REASONS FOR INCOME INEQUALITY.
- Education - income will increase with more education
- Wealth - some hold more wealth and distribution of wealth is MORE unequal than distribution of income
- Tax law changes - marginal tax rates on high incomes have been reduces more than rates on lower income
- Decline in unions - high school graduates following parents
- More service jobs - structural change from goods production to services production - wages typically lower
- Advances in tech. - fewer skills needed
- Monopoly power - powerful groups limiting # of people entering profession
- Discrimination - women/minority groups
- Changing family structures - divorces/single parent families
Explain the efforts to help the poor
Antipoverty Programs
- Welfare
- TANF (temporary assistance for needy families)
- food stamps
- Medicaid
- Social service planning
- Earned income tax credit (EITC)
- Enterprise zones
- Workfare programs
- Negative income tax
