Chapter 7 Flashcards
National income and product accounts
“national accounts”
Keep track of the flows of money between different sectors of the economy
Consumer spending
Household spending on goods and services
Stock
A share in the ownership of a company held by a shareholder
Bond
Borrowing in the form of an IOU that pays interest
Dvidiends
profits distributed to shareholders
Government transfers
Payments by the government to individuals for which no good or service is provided in return
Ex. Social Security, unemployment insurance
Disposable income
Income + government transfers - taxes = d.income
The total amount of household income available to spend on consuption and save
Private savings
Disposable income that is not spent on consumption
Disposable income - Consumer spending
Financial markets
The banking, stock, and bond markets, which channel private savings and foreign lending into investment spending, government borrowing, and foreign borrowing
Gross domestic product
The value of all the final goods and services provided
Government borrowing
The total amount of funds borrowed by federal, state, and local governments in the financial markets
Government purchases of goods and services
Total expenditures on goods and services by federal, state, and local governments
Exports
Goods and services sold to other countries
Imports
Goods and services purchased from other countries
Inventories
Stocks of goods and raw materials held to facilitate business operations
Investment spending
Spending on productive physical capital - such as machinery and construction of buildings, and on changes to inventories
final goods and services
Goods and services sold to the final, or end, user
Intermediate goods and services
Goods and services bought from one firm by another firm that are inputs for production of final goods and services
Gross Domestic Product (GDP)
The total value of all final goods and services produced in the conomy during a given year
Aggregate spending
The sum of consumer spending, investment spending, government purchases of goods and services, and exports minus imports
=
Total spending on domestically produced final goods and services in the economy
Third Way
GDP =
Sum the total factor income earned by households from firms in the economy
3 ways of GDP calculation
- Adding up total value of all final goods and services provided
- Adding up spending on all domestically produced goods and services
- Adding to total factor income earned by households from firms in the economy
Value added
The value of a producer’s sales minus the value of its purchases of intermediate goods and services
Not included in GDP
Intermediate goods and services
Inputs
Used goods
Stocks and bonds
Foreign produced goods and services
GNP
The total factor income earned by residents of a country
excludes: factor income earned by foreigners (profits to foreign investors on american stocks or payments to foreigners working in US)
includes: americans who work abroad temporarily and american companies profiting in foreign countries
Aggregate output
The economy’s total quantity of output of final goods and services
Real GDP
The total value of all final goods and services produced in the economy during a given year, calculated using the prices of a selected base year
Nominal GDP
The value of all final goods and services produced in the economy during a give year
Calculated using the prices current in the year in which the output is produced
Chained dollars
The method of calculating changes in real GDP using the average between the growth rate calculated using an early base year and the growth rate calculated using a late base yera
GDP per capita
GDP divided by the size of the population
The equivalent to the average GDP per person
Aggregate price level
A measure of the overall level of prices in the economy
Market basket
A hypothetical set of consumer purchases of goods and services
Price index
Measures the cost of purchsing a given market basket in a given year, where that cost is normalized so that it is equlal to 100 in the selected base year
Inflation rate
The percent change per year in a price index - typically the consumer price index
Consumer price index (CPI)
Measures the cost of the market basket of a typical urban American family
Price index formula
Cost of market basket in a given year
Cost of market basket in base year
X 100
Inflation rate formula
Price index in year 2 - Price index in year 1
Price index in year 1
X 100
Producer Price index (PPI)
Measures changes in the prices of goods purchased by producers
GDP deflator
100 times the ratio of nominal GDP to real GDP in a given year
