Chapter 2 Flashcards
Gross domestic product (GDP)
The total income earned domestically, including the income earned by foreign-owned factors of production; the total expenditure on domestically produced goods and services
National income accounting
The accounting system that measures GDP and many other related statistics
Stock
A variable measured as a quantity at a point in time
Flow
A variable measured as a quantity per unit of time
Value added
The value of a firm’s output minus the value of the intermediate goods the firm purchased
Imputed value
An estimate of the value of a good or service that is not sold in the marketplace and therefore does not have a market price
What are some things that are treated differently when calculating GDP?
Used goods
Inventories
Intermediate goods
Imputations
Nominal
Measured in current dollars; not adjusted for inflation
Real
Measured in constant dollars; adjusted for inflation
GDP deflator
The ratio of nominal GDP to real GDP; a measure of the overall level of prices that shows the cost of the currently produced basket of goods relative to the cost of that basket in a base year
National income accounts identity
The equation showing that GDP is the sum of consumption, investment, government purchases, and net exports
Consumption
Goods and services purchased by consumers
Investment
Goods purchased by individuals and firms to add to their stock or capital
Government purchases
Goods and services bought by the government
Net exports
Exports minus imports
Consumer price index (CPI)
A measure of the overall level of prices that shows the cost of a fixed basket of consumer goods relative to the cost of the same basket in a base year
What are some other measures of income?
Gross national product
Net national product
National income
Personal income
Disposable personal income
What are the differences between CPI and the GDP deflator?
GDP deflator measures the price of all goods and services produced, CPI measures only goods and services bought by consumers
GDP deflator includes only goods produced domestically while CPI includes imported goods
The CPI assigns fixed weights to the prices of different goods while the GDP deflator assigns changing weights
PCE deflator
The ratio of nominal personal consumption expenditure to real personal consumption expenditure; a measure of the overall level of prices that shows the cost of the currently consumed basket of goods relative to the cost of that basket in a base year
Why might the CPI overstate inflation?
Substitution bias
Introduction of new goods
Unmeasured changes in quality
Labor force
People who have a job or are looking for a job
Unemployment rate
The percentage of those in the labor force who do not have jobs
Labor-force participation rate
The percentage of the adult population in the labor force
