Chapter 6 - Introduction to Macroeconomics and GDP Flashcards
What is the study of the economy of an entire nation or society?
Macroeconomics
What is the study of individual people, firms, and industries?
Microeconomics
What do economists measure in order to figure out what the overall health of the economy is?
The total output of an economy
Why do we cover output and input together?
They are essentially the same thing
What is the market value of all final good and services produced within a nation during a specific time period?
Gross Domestic Product (GDP)
What is the typical time period of GDP?
A year
Why is GDP useful to examine?
- It can estimate living standards across time and nations
- It measures economic growth
- It can determine whether an economy is experiencing a short-run expansion or recession
What is the per capita GDP?
The GDP per person
How do you find the per capita GDP?
Divide the GDP by the population
Why do prices of goods and services almost always rise over time?
Inflation
What is the growth of the overall level of prices in the economy?
Inflation
What is GDP adjusted for changes in prices over time called?
Real GDP
What is Economic growth measured as?
The percentage change in real per capita GDP
What are short-term economic downturns?
Recessions
What are short-run fluctuations in economic activity?
Business cycles
What two phases do the peaks and troughs divide the business cycle into?
- Expansion
2. Contraction
When does an economic expansion occur?
From the bottom of the trough to the next peak
When does n economic contraction occur?
From the peak downward to the trough
What is used to determine whether an economy is expanding or contracting in the short run?
GDP
Economists use what to add corn and cars and the other goods and services in GDP?
Market values
How do you find the market value of one good, what about multiple goods?
- You take the quantity and times it by the price
2. You add the market values of everything together
Does the majority of the U.S GDP come from goods or services?
Services
What are outputs that provide benefits without the production of tangible products?
Services
Does all the spending involved in building a single good count towards GDP?
No
What are goods that are repackaged or bundled with other good for a later sale?
Intermediate goods
What are goods that are sold to final users?
Final goods
Does GDP only include goods and services that are produced domestically?
Yes
What is the output produced by workers and resources owned by residents of the nation?
Gross national product (GNP)
Do sales of financial assets such as stocks and bonds count toward GDP?
No
What process does the BEA use to tally GDP data?
The national income accounting
What are the four major categories that GDP is broken up into?
- Consumption
- Investment
- Government purchases
- Net exports
Which government agency is in charge of tallying GDP data?
The Bureau of Economic Analysis (BEA)
What is the largest component in GDP?
Consumption
What is the purchase of final goods and services by households?
Consumption
Does consumption include of buying new houses?
No
What are the two categories that consumption is divided into?
- Durable goods
2. Non-durable goods
Which consumption goods are consumed over a short period?
Non-durable goods
Which consumption goods are consumed over a long period?
Durable goods
What refers to private spending on tools, plant, and equipment used to produce future output?
Investment
What includes spending by all levels of government on final goods and services?
Government purchases
Are transfer payments (welfare payments or unemployment insurance) included in government purchases?
No
What’s the equation to find net exports?
Exports - imports
Do we count imports in our GDP?
No
What is the GDP calculated from current prices called?
Nominal GDP
What is an index of the average prices of goods and services throughout the economy?
Price level
What is the price level index that includes prices of final goods and services in GDP?
GDP deflator
Is real GDP adjusted for inflation?
Yes
What is it when our nominal GDP is equal to our real GDP?
Base year
What number should the price level be in a base year?
100
How do you convert nominal GDP into real GDP?
(Nominal GDP / Price level) x 100
What are calculated as percentage changes in a variable?
Growth rates
What are the steps to finding the growth rate?
- value - (value -1)
- / by value - 1
- x 100
What is nominal GDP equal to?
Real GDP + price level
What was the rate of growth of real GDP in Mexico in 2010?
Nominal GDP = 18
Price level growth rate = 4.4
13.6
What is the single most important indicator of macroeconomic performance?
GDP
Why do economists stress real GDP rather than nominal GDP when looking at GDP changes over time?
Real GDP takes inflation into consideration
What are the four shortcomings of GDP?
- Non-market goods
- Underground Economy
- Quality of the Environment
- Leisure time
What are goods and services produced, but not sold?
Nonmarket goods
Which shortcomings of GDP include uncompensated household activities?
Nonmarket goods
Which shortcoming of GDP is washing the dishes an example of?
Nonmarket goods
Which shortcoming of GDP is babysitting an example of?
Underground economy
What shortcoming of GDP is prostitution an example of?
Underground economy
What includes transactions that are not reported to the government, and therefore not taxed?
The underground economy
Does the underground economy only include illegal transactions?
No
What’s an example of a legal underground economy transaction?
Waitress tips
Does the U.S. have a small or large underground(shadow) economy?
Small
How is macroeconomics different from microeconomics?
Microeconomics is the study of individuals and firms, but macroeconomics considers the entire economy
Does GDP measure both output and income?
Yes
