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Economics 144 > Chapter 7: GDP and Real GDP > Flashcards

Chapter 7: GDP and Real GDP Flashcards

0
Q

Final Good

A

A good in the hands of its final user

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1
Q

Gross Domestic Product

A

The total market value of all goods and services produced within a country during a specific time period.

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2
Q

Intermediate Good

A

A good that is an input to the production of a final good.

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3
Q

Double Counting

A

Counting a good more than once when computing GDP.

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4
Q

Name 4 expenditure components

A
  • Consumption
  • Investment
  • Government Purchases
  • Net Exports
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5
Q

Consumption

A

The sum of spending on durable goods, nondurable goods and services.

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6
Q

Investment

A

The sum of all purchases or newly produced capital goods, changes in business inventories and purchases of new residential housing.

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7
Q

Inventory investment

A

Changes in the stock of unsold goods.

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8
Q

Fixed Investment

A

Business purchases of capital goods, such as machinery and factories and purchases of new residential housing.

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9
Q

Government Purchases

A

Federal, stare and local government purchases of goods and services and gross investment in highways, bridges and so on.

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10
Q

Government transfer payments

A

Payments to persons that are not made in return for currently supplied goods and services.

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11
Q

Imports

A

Total domestic spending on foreign goods.

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12
Q

Exports

A

Total foreign spending on domestic goods.

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13
Q

Net Exports

A

Exports minus imports

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15
Q

GDP =

A

C + I + G + (EX - IM)

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16
Q

Two ways in which firms’ inventory investment can rise:

A
  • Planned inventory investment

- Unplanned inventory investment

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17
Q

Planned inventory investment

A

Firms may deliberately produce more units of a good and add them to inventory

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18
Q

Unplanned inventory investment

A

Consumers don’t buy as many units of output as produced, and unsold units are added to inventory.

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19
Q

National Income

A

Total income earned by citizens and businesses.

The sum of payments to resources.

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20
Q

National Income =

A

Compensation to employees + proprietors’ income + Corporate profits + Rental income of persons + Net interest

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21
Q

5 Components of national income

A
  • Compensation of employees
  • Proprietors’ income
  • Corporate profits
  • Rental income of persons
  • Net interest
22
Q

Compensation of employees

A

Total of

  • wages and salaries paid,
  • employers’ contributions to Social Security and employee benefit plans,
  • monetary value of fringe benefits, tips and paid vacations.
23
Q

Proprietors’ incom

A

Income earned by self-employed individuals and unincorporated business owners

(unInc. farms incl.).

24
Q

Corporate profits

A 
Income earned by stockholders of corporations.
Includes:
- Dividends
- Retained income
- Corporate profit tax
25
Q

Net interest

A

Interest income received by households and governments minus interest payed.

26
Q

(Using National income)

GDP =

A 
National income
- Income earned from the rest of the world
\+ Income earned by the rest of the world
\+ Indirect business taxes
\+ Capital consumption allowance
\+ Statistical discrepancy
27
Q

Income earned from the rest of the world

A

Income that citizens living abroad earned by producing and selling goods.

28
Q

Income earned by the rest of the world

A

Income that non-citizens (foreigners) earned by producing and selling goods within the country-borders.

29
Q

3 Main indirect business taxes

A
  • Excise taxes
  • Sales taxes
  • Property taxes
30
Q

Why are indirect business taxes not part of national income?

A

They are not considered a payment to any resource.

They can be considered monies collected by government, not payments to land, labor, capital or entrepreneurship.

31
Q

Why should indirect taxes be added when computing GDP from national income?

A

Indirect taxes are included in the purchases of goods and services and so are included when the expenditure approach is used to compute GDP.

32
Q

Capital Consumption Allowance (Depreciation)

A

The estimated amount of capital goods used up in production through natural wear, obsolescence and accidental destruction.

33
Q

The 5 measures for output produced in an economy

A
  • Gross domestic product
  • National income
  • Net domestic product
  • Personal income
  • Disposable income
34
Q

Net Domestic product

A

GDP minus depreciation (capital consumption allowance)

35
Q

Personal Income

A

The amount that individuals actually receive.

36
Q

Personal Income equals

A 
National income 
- undistributed corporate profits
- social insurance taxes
- corporate profits taxes
\+ transfer payments
37
Q

Disposable income

A

The portion of personal income that can be used for consumption or saving.

38
Q

Disposable income equals

A

Personal income - personal taxes.

39
Q

Real GDP

A

The value of the entire output produced annually within a country’s borders, adjusted for price changes.

40
Q

Real GDP =

A

∑ (Base-year prices x current-year quantities)

41
Q

Economic growth

A

Increases in Real GDP

42
Q

Business Cycle

A

Recurrent swings (up and down) in Real GDP

43
Q

Five phases in the business cycle

A
  • Peak
  • Contraction
  • Trough
  • Recovery
  • Expansion
44
Q

Peak

A

Real GDP is at a temporary high.

45
Q

Contraction

A

The contraction phase represents a decline in Real GDP.

46
Q

Reccesion

A

Two consecutive quarter declines in Real GDP.

47
Q

Trough

A

The low point in Real GDP, just before it begins to turn up.

48
Q

Recovery

A

Real GDP is rising. It begins at the tough and ends at the initial peak.

49
Q

Expansion

A

Increases in Real GDP beyond the recovery.

50
Q

A business cycle measures from ____ to ____

A

peak to peak

51
Q

Typical business cycle length

A

four to five years.

Economics 144 (16 decks)

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