Chapter 7: Tracking the Macroeconomy Flashcards

1
Q

GDP

A
  1. a measure of the overall value of goods and services produced
  2. one of most important measures used to track the macroeconomy or to quantify movements in the overall level of output and prices.
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2
Q

National income and product accounts (national accounts)

A

keep track of the flows of money between different sectors of the economy

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3
Q

Consumer spending

A

household spending on goods/services from domestic and foreign markets

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4
Q

stock

A

share in the ownership of a company held by a shareholder

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5
Q

bond

A

borrowing in the form of an IOU that pays interest

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6
Q

Government transfers

A

payments by the govt to individuals for which no good or service is provided in return (Social security and/or unemployment insurance benefits)

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7
Q

Disposable income

A
  1. = income + govt transfers (SS & unemployment) – taxes
  2. total amount of household income available to spend on consumption and to save.
  3. Not all spent, instead set aside as private savings in financial markets (banks, etc.) where used to buy/sell stocks and bonds and make loans.
  4. Therefore, private savings = disposable income - consumer spending (0r disposable income not spent on consumption)
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8
Q

Circular-Flow diagram, revisited: underlying principle

A

the inflow of money into each market or sector = outflow of money coming from that market or sector

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9
Q

simple world has households and firms

A

Households:

  • engage in consumer spending
  • own factors of production (labor, land, physical capital, human capital and financial capital)
  • they sell the use of these factors to firms and receive wages, profit, interest payments and rent in return.
  • additional income in form of stocks and bonds (dividends from stocks and interest payments on bonds).
  • rent is received in return for letting firms use land or structures they own
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10
Q

Govt borrowing

A

total amt of funds borrowed by federal, state and local govts in the financial markets (along with tax revenues, $ borrowed is used to buy goods/services)

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11
Q

Govt purchases of goods and services

A

total expenditures on goods/services by federal, state and local govts (ie military spending on ammunition, local public schools expenditures)

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12
Q

Exports

A

goods/services sold to other countries

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13
Q

imports

A

goods/services bought from other countries

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14
Q

inventories

A

stocks of goods/raw materials held to facilitate business operations

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15
Q

Investment spending

A

spending on productive physical capital (ie machinery and construction of buildings, and on changes to inventories (an increase in inventory produced changes the ability of a firm to make future sales.) Conversely, a drawing down of inventories is counted as a fall in investment spending because it leads to lower future sales. Construction of homes is included because a new house produces a future stream of output – housing services for it’s occcupants.

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16
Q

Another way to define GDP

A

consumer spending + investment spending + govt purchases + value of exports – value of imports = measure of overall market value of goods/services the economy produces.

17
Q

Final goods/services

A

those sold to the final or end user

18
Q

Intermediate goods/services

A

bought from one firm by another firm that are inputs for production of final goods/services

19
Q

YEt another way to define GDP

A

total value of all final goods/services produced in the economy during a given year

20
Q

Aggregate spending

A

the sum of consumer and investment spending, govt purchases of goods/services, and – imports = total spending on domestically produced final goods/services in the economy

21
Q

Calculating GDP by survey

A
  1. Survey firms and add up the total value of their production of final goods/services
  2. Do not include values of intermediate goods/services
  3. To avoid double counting, count only each producer’s value added (value of sales - value of intermediate goods/services)
22
Q

Calculating GDP by adding up aggregate spending

A
  1. add up aggregate spending on domestically produced final goods/services in the economy
23
Q

Calculating GDP by sum of total factor income

A
  1. sum the total factor income earned by households from firms in the economy