Chapter 14 Flashcards
What is Nominal GDP?
It is the value at current prices of all final products and services produced annually in a country
Calculating Nominal GDP
Calculated by taking the Price and Quantity of a good and adding them all up together for how ever many goods you have.
What is Flow?
Flow is an amount per unit of time, examples include income and stock
GDP includes:
products and services produced within a country no matter what the nationality of the business doing the producing
What is real GDP?
It is the value at constant prices of all final products and services produced annually in a country
How do your calculate Real GDP?
Using a base year, you multiply the price of the year you are in to the base year quantity for each product and add all the products together (P^A 20002 multiplied by Q^A 1935, ext)
Differences in real GDP between years show only changes is:
quantities
Real GDP per Person
Is real GDP divided by population, best measure of material standard of living
What do consumers do in input markets?
They sell inputs to businesses in input markets in exchange for wages, interest, rent, and profits
What do businesses do in input markets?
They use the consumers inputs or produce products and services, which are then sold in the output markets
What is value added?
It is the value of output minus the value of intermediate products and services bought from other businesses, solves the problem of double counting
The value of final products and services equal…
inputs income
Spending on final products and services equals…
Payments to input owners
What equation equals aggregate income (Y)?
C+I+G+X-IM=Y
Consumer choices in the GDP circular flow of income and spending with Banking System
-Spend or save
-Disopsable income (aggregate income minus net taxes)
-Net taxes(taxes minus transfer payments)
Business choices in GDP circular flow of income and spending with Banking System
-hiring inputs and producing products and services
-investment spending(often financed by borrowing)
Government choices in GDP circular flow of income and spending with Banking System
-Collect taxes, make transfer payments
-Spending on products and services
-Policy choices
R.O.W choices in GDP circular flow of income and spending with Banking System
-buy Canadian exports or products and services from elsewhere
-Sell imports to Canada or elsewhere
-Invest and borrow money in canada or elsewhere
Bank choices in GDP circular flow of income and spending with Banking System
-take deposits and make loans
What is potential GDP?
It is real GDP when all inputs, labour, capital, land/resources, and entrepreneurship are fully employed, short run goal for economic performance
What is Potential GDP per Person?
Potential GDP divided by the population, short run maximum possible for living standards for an economy
A Production Possibilities frontier shows what?
Shows the max combination of products and services that a country can produce when all inputs(Labour, capital, land/resources, and entrepreneurship) are fully employed
-on the PPF all inputs are fully employed, economy is producing at potential GDP
-Inside the PPF some inputs are unemployed, economy is producing below potential GDP
Economic growth is caused by?
It is caused by increases in the quantity or quality of a country’s inputs, including technological change, labour, capital, land/resources, and entrepreneurship
Increases of Labour come from:
Quantity: population growth, immigration, increase in labor force participation rate
Quality: Increases in human capital, increased earning potential from work experience, on the job training, and education
Increases in Capital come from:
Quantity: from more factories and equipment
Quality: from tech changes(improvements in quality of capital through innovation, research, and development
Increases in land and resources are caused by
Quantity: by brining land and resources not connected to markets into the circular flow
Quality: Increases usually due to increases in capital used with land (better land means more resources)
Increases in entrepreneurship are caused by:
Quantity and quality: improvements from better management techniques, organization, and worker/management relations (how people work together)
A stock as a measure of time is:
A fixed amount at a moment in time
Economic growth rate equals
the annual percentage change in real GDP per person
(real GDP per person growth rate) =(Real GDP per person this year)- (Real GDP per person last year) divided by (Real GDP per person last year) times 100 n
What is the rule of 70?
It is the number of years it takes fro an amount of money to double is roughly 70 divided by annual percentage growth rate (70/ annual percent growth rate)
-due to compounding small differences in annual growth rates have large consequences over time
What is creative destruction?
It is competitive business innovations generate profits for winners, improving living standards for all, but destroy less productive or less desirable products and production methods
What are business cycles?
They are up and down fluctuations of real GDP around potential GDP
What is the process of business cycles:
Expansion(GDP increases), Peak(highest point of an expansion), Contraction(when real GDP decreases), trough(lowest point of a contraction), recession(two or more successive quarters of contraction of real GDP)
Output Gap is
Real GDP minus potential GDP
What is a a recessionary gap?
When real GDP is below potential GDP, gap is a negative number
What is an inflationary gap?
when real GDP is above potential GDP, the gap is a positive number
Real GDP per person is a limited measure of well being because:
Non market production(household production), underground economy(illegal activities), environmental damage(resource depletion and environmental damage), leisure(more leisure lowers GDP), and political freedoms and social justice(limited political freedoms and unequal distributions of income)
