Chapter 2 Flashcards
Key concepts
Gross Domestic Product GDP
It is computed every 3 months by the Bureau of Economic Analysis from a large number of primary data sources; adinistrative data and statistical data.
Its purpose is to summarize all data with a single number representing the dollar value of economic activity in a given period of time.
«< GDP is the market value of all final goods and services produced within an economy in a given period of time.
National income accounting
it is the accounting system used to measure GDP and many related statistics.
Stocks and Flows
A Stock is a quantity at a given point in time.
A Flow is a quantity measured per unit of time.
ex: a person’s wealth is a stock; his incoe and expenditure are flows.
Value Added
The value added of a firm equals the value of the firm’s output less the value of the intermediate goods that the firm purchases.
Imputed Value
It is an estimation of prices for goods not sold in the market place.
Nominal versus Real GDP
Nominal GDP is the value of goods and services measured at current prices.
ex: (Price of Apples x quantity of apples) + (Price of oranges x quantity of oranges)
Real GDP is the value of goods and services measured using a constant set of prices. => shows what would have happened to expenditure on output if quantities had changed but prices had not.
ex: base year=2009
Read GDP in 2011= (2009 price of apples x 2011 quantity of apples) + (2009 price of oranges x 2011 quantity of oranges)
GDP Deflator
It is used to deflate (that is, take inflation out of) nominal GDP to yield real GDP.
it measures the price of output relative to its price in the base year.
know also as implicit price deflator for GDP= Nominal GDP/ Real GDP
National income accounts identity
Y=C + I + G + NX C= consumption I=Investment G=Government purchases NX= Net exports Y= GDP
Consumption
it consists of goods and services bought by households
Investment
it consists of goods bought for future use
Government purchases
they are the goods and services bought by federal state and local governments
Net exports
it accounts for trade with other countries
NX= E - I
Net Exports represent the net expenditure fro abroad on our goods and services, which provides income for domestic producers.
Consumer Price Index CPI
CPI turns the prices of many goods and services into a single index measuring the overall level of prices.
The CPI is the price of a typical consumer’s basketof goods and services relative to the price of the same basket in some base year
ex: CPI= [(Q of apples x Current P of apples ) + (Q of oranges x Current price of oranges)] / [(Q of apples x 2009 price of apples) + (Q of oranges x 2009 price of oranges)]
Labor force
it is defined as the sum of employed and unemployed
an unemployed individual is someone who has tried to find employment during the previous 4 weeks.
A discouraged worker as in soeone who tried then gave up is counted as not in the labor force.
Unemployment rate
the percentage of the labor force that is employed
= NB of unemployed / Labor force x 100
