Chapter 2 - The US Economy Flashcards
This chapter will answer 3 questions about American economics. What are they?
- WHAT America produces
- HOW America produces
- FOR WHOM America produces
What are the 2 subcategories of the question: WHAT America produces?
- Mix of output
- How outputs are measured
How many mixes of output are there and what are they? (in decreasing order)
4 - Consumer goods, investment goods, government services, and net exportss
What are the 3 types of consumer goods?
- Durable goods
- Nondurable goods
- Services
What is the largest and fastest growing component of consumption?? Give some examples
SERVICES - medical care, entertainment, utilities, etc
Describe durable goods
expected to last at LEAST 3 years, expensive and often purchased on credit, CYCLICAL - very sensitive to economic trends
Under the 3 types of consumer goods, under which category is the most money spent?
nondurable goods
What is the definition of investment goods?
Plant, machinery, and equipment that are produced for use in the BUSINESS sector
Why do businesses need to spend money to maintain equipment?
Machinery gets worn out. production possibilities curve shifts inward. we want to expand the curve ideally
Items at the store are considered which type of output??
They are considered INVESTMENT goods until they’re sold
What is the definition of government services?
Federal, state, and local governments purchase resources to police the streets, teach classes, write laws, and build highways
Are income transfers counted in GDP? Give some examples of income transfers.
NOT counted. food stamps - not counted bc they’ll already be counted under consumer non durable goods
Which parts of government use more scarce resources??
State and local use way more of our scarce resources than federal
What is the formula for net exports? Do we want it to be a big or small number?
net exports = exports-imports. We want this to be a big number
How are outputs measured?
GDP - Total value of final goods and services produced in a country during a given period of time
How can total output be measured?
Multiplying the physical output of each good by its price
GDP = _________*________
output * price
What is nominal GDP?
The value of GDP measured in current dollars. Output and price are taken from the SAME YEAR
Why is it useless to compare nominal GDP from one year to another?
INFLATION
Which type of GDP is useless for comparing year to year?
Nominal GDP
What is the best measure of GDP? Why?
Real GDP because it’s an inflation adjusted value that measures output at CONSTANT prices
When comparing year 1 and year 2, nominal GDP would be found by calculating ____ while real GDP would be found by calculating ______
nominal = year 1 output, year 1 prices vs year 2 output, year 2 prices
real- year 1 output, year 1 prices vs year 2 output YEAR 1 PRICES
What is per capita GDP and what is it an indicator of?
Total GDP divided by total population. Indicator of how much each person would get if all output were split evenly
What are the 3 subcategories under HOW america produces
-Factors of production
-business organization
-government regulation
NOT NAMING THEM, what is the definition of the factors of production
Resource input used to produce goods and services
What are the 2 factors of quality
productivity - output per unit of input (output per labor hour)
human capital (knowledge and skills possessed by work force)
Why does the US have high productivity?
We use highly educated workers in production processess
What is factors mobility?
Reallocating resources from one industry to another
What are the 3 different business organizations
Corporations
partnerships
proprietorships
DIFFERENTIATE between the 3 business organizations
corporations are own by many individuals who own shares (stocks) in the corporation and have limited liability.
PARTNERSHIPS are owned by a small number of individuals who share liability
PROPRIETORSHIPS are owned by ONE individual who has SOLE liability
What are the 4 parts of government regulation
- Provide legal framework (rules of the game)
- Protect consumers (prevent businesses from becoming too powerful)
- Protect labor
- protect environment (chemical disposals)
As countries develop, distribution of income becomes more _____
equal
Taxes and transfers are used by the government to ________
redistribute income
What is progressive tax?
tax rates rise as incomes rise. (federal income tax). Makes after tax income more equal
What is regressive tax?
Tax rates fall as incomes rise (usually state tax) makes after tax distribution less equal. ex- 6% tax on100grand income is gonna be a different percentage of income for everyone
What is the largest income transfer program?
Social Security
What do income transfers do?
Gives lower income households more output than the market itself would provide
On the production possibilities curve, something must exist. What is it??
Line must be TOUCHING both axes
