Chapter 6 Flashcards
What is macroeconomics?
The study of the performance of the national economy and the global economy.
What is GDP?
The market value of all final goods and services produced within a country in a year.
What is GDP per capita and what does it measure?
GDP divided by the population of a country. GDP per capita gives us a way to measure changes in economic output and standard of living.
What are intermediate goods?
Goods and services that are sold to firms and then bundled or processed with other goods or services for sale at a later stage.
GDP is estimated as the market value of all
intermediate and final goods and services
produced by citizens of a country in a given
period of time.
True or False?
False;
Intermediate goods are not counted in GDP.
What are goods?
Physical objects that people value and produce to satisfy
human wants
What are services?
Services are tasks performed for people who value them .
GDP is meant to measure production, so sales of _________ goods are not included in GDP.
Used
The sale of an old house does not add to GDP because the house was not produced in the year that it was sold.
True or False?
True.
GDP is the market value of the goods and services produced by labor and capital located within the United States regardless of the _________ of the workers or the property owners.
Nationality
GDP is typically estimated over what period of time?
Annually
What does GDP stand for?
Gross Domestic Product
Sales of financial assets are included in GDP.
True or False?
False
What is GNP or Gross National Product?
Market value of all final goods and services produced by the labor and property supplied by U.S. permanent residents wherever in the world that labor and capital is located.
What does national wealth refer to?
The value of a nation’s entire stock of assets.
Who calculates GDP?
Bureau of Economic Analysis (BEA), which is part of the Department of Commerce.
What does the GDP growth rate tell us?
How rapidly the country’s production is rising or falling over time.
How do you compute the nominal GDP growth rate?
GR = [(GDP new – GDP old) / GDP old] * 100
What is nominal GDP?
It is the rate of growth without adjusting for price changes and interest rates
Only increases in production are true increases in standard of living.
True or False?
True
What is real GDP?
GDP measure that has been adjusted for changes in prices by using the same set of prices in all time periods. It corrects for inflation.
What is the GDP Deflator?
A price index that can be used to measure inflation.
How do we calculate the GDP Deflator?
GDP Deflator= [Nominal GDP / Real GDP] x100
Real GDP does not account for population changes.
True or False?
True
How do we calculate Real GDP per capita?
Real GDP / population
Growth in real GDP per capita is usually the best reflection of changing___________.
standards of living
How we calculate real GDP growth per capita?
Real GDP growth / population
What is a recession?
Decline in real income and employment lasting more than a few months
A recession is widespread not only geographically but also across different sectors of the ___________.
economy
What are business fluctuations?
The short run movements in real GDP around its long term trend
What two ways do economists split the production of goods and services in many different ways?
- The National Spending Approach
2. The Factor Income Approach
What are the 4 spending categories that GDP is divided into?
- Consumption
- Investment
- Government Purchases
- Exports minus Imports
Formula for National Spending Approach to GDP
Y = C + I + G + NX
Formula for Factor Income Approach to GDP
Y = Wages + Rent + Interest + Profit
What does the National Spending Approach do?
It sums up the amount spent on final goods and services.
Imported goods are part of U.S. GDP
True or False?
False
What is consumption spending?
Private spending on final goods and services.
What is investment spending?
Private spending on tools, plant, and equipment used to produce future output. This is also viewed as capital.
What is government spending?
Spending by all levels of government on final goods and services not including transfers.
What are net exports?
The value of exports minus the value of imports.
When a consumer spends money, the money is received by workers, landlords, owners of capital, and businesses. This highlights which approach?
The Factor Income Approach
Which approach needs to be adjusted for sales tax?
The Factor Income Approach
What do business fluctuations consist of?
Recessions and expansions
What is the largest payment in GDP?
Labor
What are 5 problems with GDP?
- It does not count underground economy, non-priced production, leisure, pollution, distribution of income
When a worker is paid under the table, this is an example of what problem with GDP?
The underground economy
What is non-priced production?
Occurs when valuable goods and services are produced but no explicit monetary payment is made.
What is leisure?
Time spent not working
