Chapter 5 Flashcards
Product markets
markets in which firms sell goods and services to consumers
Factor markets
households supply labor to firms and provide capital to firms
Gross Domestic Product (GDP)
the total market value of all the final goods and services produced within an economy in a given year; most common measure of an economy’s total output; rate of production
Total Market Value
the quantity of goods produced multiplied by their respective prices added and totaled
Final Goods and Services
goods and services sold to ultimate, or final, purchasers
Intermediate good
a good that is used in the production process, not considered a final good or service
Real GDP
a measure of GDP that controls for changes in price
Nominal GDP
a value of GDP in current dollars
What are two reasons Nominal GDP can increase?
- Production of goods and services have increased
2. Prices of those goods and services have increased
Components of GDP
- Consumption expenditures
- Private investment expenditures
- Government purchases
- Net exports
Economic Growth
sustained increases in the real GDP of an economy over a long period of time
Consumption Expenditures
purchases by consumers of currently produced goods and services, either domestic of foreign; includes durable goods, nondurable goods, and services
Private Investment Expenditures
purchases of newly produced goods and services by firms
Gross investment
total new investment expenditures
Depreciation
reduction in the value of capital goods over a 1-year period due to physical wear and tear and also to obsolescence; also called capital consumption allowance
New investment
gross investment minus depreciation
Government purchases
purchases of newly produced goods and services by federal, state and local governments, including any goods that the government purchases plus the wages and benefits of all government workers and investment spending by the government (excludes transfer payments)
Transfer payments
payments from governments to individuals that to not correspond to the production of goods and services
Imports
goods and services produced in a foreign country and purchased by residents of the home country
Exports
goods and services produced in the home country and sold in another country
Net Exports
exports minus imports
Trade deficit
the excess of imports over exports
Trade surplus
the excess of exports over imports
GDP equation
Y=C+I+G+NX; Y=GDP, C=consumption, I=investment, G=government purchases, NX= net exports
