Chapter 7 Flashcards
National Income and product accounts keep track of
flows of money in the economy
Business Cycle Sectors
Government, Household, Firms, Rest of the World
Government purchases, what do they give to Households
purchases g/s like education, defence, transfers payments, gives money to household
Households type of spending and where they purchase g/s
consumer spending, purchasing g/s through markets for goods and services
Firms purchases
investment spending to buy physical capital
Rest of World, where does their spending come
spending comes from exports, g/s sold to residents of other countries across globe
GDP: Gross Domestic Product
market value of ALL FINAL G/S produced within a country in a year, (overall output)
GDP per Capita
avg output per person, GDP/Population,
Why do we use final goods and service
to avoid multiple counting of intermediate goods
Final Goods and Services and example
g/s sold to the final/end user ex automobile
intermediate goods and example
g/s bought from one firm/individual by another firm/individual, input for production of final g/s ex steel used for automobiles
value added
value of sale - value of intermediate goods
aggregate expenditure
sum of consumer spending, government purchases of g/s, exports minus imports. Total spending on domestic final g/s
What is in GDP (3)
investment spending, capital spending, domestically produced final goods and services
investment spending
spending on physical capital ex machines tools
domestically produced final goods and services (5)
capital goods, new construction of stuctures, home based businesses, educational services, change to inventories
What is not in GDP (6)
spending on intermediate g/s, inputs, used goods, financial assets, imports, environmental damage
calculating GDP 3 methods
value added approach, expenditure approach, income approach
value added approach
add up total value of all final g/s produced, value of sales- cost of intermediate goods
the expenditure approach
adding up spending on all domestically produced goods and services, use the GDP equation
expenditure equation (GDP equation)
GDP=C+I+G+X-IM
Income Approach
adding up total factor income earned by households, from firms in the economy
Factor Income and 4 examples
incomes earned by factors of production (wage, rent, interest, profit
non factor payments and equation
earned by government as a result of production, prices paid for final goods -amount received by factors of production.
non factor payments include
net indirect taxes and capital depreciation
net indirect taxes
provincial/federal sales tax - subsidies paid to purchases
capital depreciation
removal of productive physical capital from capital stock as it wears out
aggregate output
total quantity of final goods and services economy produces
real GDP
calculated using prices of base year
nominal GDP
calculated using prices of current year
why do we prefer real GDP
able to focus on changes in quantity of output by eliminating influences of changes in prices
chained dollars
calculating changes in real GDP using average between growth rate w/ base year and growth rate with later base year
aggregate price level and how we calculate it
measure of overall level of prices in economy calculated by a market basket
market basket
hypothetical set of consumer purchases of goods and services
price index
measures cost of purchasing a given market basket in a given year normalized with base year
price index formula
price index in given year=(cost of market basket in given year/ cost of market basket in base year)x100
CPI: Consumer price index
measures cost of market basket and how it changes over time.
CPI formula
same equation as price index formula but with cost of FIXED Market Basket
Inflation rate
yearly percentage change in a price index, change in overall price level of economy
Inflation rate equation
price index in year2- price index in year1/ price index in year1
producer price index
measures changes in prices of goods and services purchased by producers
GDP Deflator
ratio of nominal GDP to Real GDP
GDP Deflator Equation
(nominal GDP/Real GDP)x100
Disposable Income
money left over after taxes, consumer spendings and transfer GDP-C-T+TR
