chapter 4 Flashcards
Gross domestic product (GDP)
market value of final goods and services produced in a country during given period
Market value
the selling price of goods and services in the open market.
The amount people are willing to pay for an item indicate what?
indication of the economic benefit they expect to receive from it.
Final good or service
the end product of a process, the product or service that consumers actually use.
Only _____ goods and serivices are included in GDP
Final goods and services
What is a capital good?
long-lived good that is used in the production of other goods or services.
Factories and machines are an example of what?
capital goods
Are capital goods final goods?
No because their purpose it to produce other goods but yet are not used up during the production process except over long periods of time so not intermediate goods either. So for measuring GDP economist agree to classify NEWLY produced capital goods as the final goods even though not consumed by ultimate consumer
Why in newly produced final capital included into GDP?
If not a country who invested in the future by building modern factories and buying new machines would be counted as having a lower GDP than a country that devoted all its resources to producing consumer goods.
value added
equals market value of its product or service minus the cost of input purchased from other firms.
Economist divide the users of the final goods and services that make up the GDP for any given year int o what four categories
- Households
- Firms
- Government
- Foreign Sector
GDP can be measured by what two methods?
1) adding up the market values of all final goods and services that are produced domestically
2) Adding up the total amount spent by each of the four groups on final goods and services and subtracting spending on imported goods and services.
Consumption expenditure or consumption
Spending by households on goods and services and subdivided into categories
What are the categories of consumption expenditure?
- Consumer durable goods
- Consumer nondurable goods
- Services (such as haircuts and taxi rides)
Investment
Spending by firms on final goods and services, primarily capital goods
Business fixed investment
purchase by firms on new goods such as machinery, factories and office buildings.
Residential Investment
- Construction of new homes and apartment buildings.
- business sector which sells homes to households
Inventory Investment
addition of unsold goods to company inventories; unsold goods are treated as if firm bought them themselves.
Government purchases
final goods bought by federal, state and local government; fighter planes and public school teachers but do not include transfer payments like social security, unemplyment, pensions paid, or welfare. Interest paid on government debt is also excluded.
GDP
= Consumption expenditure + Government purchase + Investment + Net exports
What are examples of capital income?
- profits earned by business owners
- rent paid to owners of land or building
- interest recieved by bondholders
- roylaties by holders of copyrights and patents
labor and capital income are both measure prior to what?
prior to taxes
real GDP
When GDP is calculated using the prices from a base year rather than current year’s prices to indicate measure of real physical production; adjusted for inflation
nominal GDP
GDP at current year prices; current dollar value of production
What is not included in GDP that contributes to economic well-being?
- Leisure time
- Nonmarket economic activities (volunteer service like fire and rescue, or unpaid housekeeping). This includes underground economy
- Environmental quality and Resource depletion
- Quality of life (low crime rate, minimal traffic congestion, active civic organization and open space)
- Poverty and Economic inequality
