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ECON 104 > Chapter 8 > Flashcards

Chapter 8 Flashcards

1
Q

gross domestic product

A

the market value of all FINAL goods and services produced IN A COUNTRY during a period of time, typically one year

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2
Q

GDP=

A

sum of all goods

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3
Q

final good or service

A

purchased by a final user
these are what are used to calculate GDP

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4
Q

why use final goods and services?

A

if we counted intermediate goods and services as well, ones that were inputs into another good or service, such as a tire on a truck, then there would be double counting

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5
Q

to measure total output in a given year, we measure goods and services produced

A

only in that given year
(avoids double counting)

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6
Q

if a new car was produced in 2018 and sold in 2019

A

it would be counted in 2018 GDP, not 2019 GDP

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7
Q

there are two main conceptual ways to measure the total economic activity in an economy:

A
  1. total production
  2. total income
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8
Q

when we measure one, we are also measuring the other, why?

A

everything that is produced and sold constitutes income or someone

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9
Q

transfer payments

A

payments to households for which the government does not receive a good or service in return

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10
Q

example of transfer payments

A

social security and welfare programs

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11
Q

imports

A

households buy goods and services to households in other countries

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12
Q

exports

A

firms sell goods and services to households in other countries

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13
Q

households elect not to spend some of their income,

A

and instead save it with financial system firms like banks
- these banks lend money to other firms and the government

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14
Q

who measures GDP

A

bureau of economic analysis (BEA)

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15
Q

four categories of expenditures

A
  1. personal consumption expenditures, “consumption” (C)
  2. gross private domestic investment. “investment” (I)
  3. government consumption & gross investment, “government purchases” (G)
  4. net exports of goods and services, “net exports” (NX)
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16
Q

GDP=

A

Y=C+I+G+NX

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17
Q

consumption

A

spending by households on goods and services, not including spending on new houses (under investments)

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18
Q

consumption- service

A

landscaping, daycare, concert, lodging

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19
Q

consumption-nondurable goods

A

consumables, foods, drinks, clothes

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20
Q

consumption- durable goods

A

car, appliances, furniture, tools

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21
Q

investment

A

spending by forms on new factories, office buildings, and additions to investories, plus spending by households and firms on new houses

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22
Q

investment- business fixed investment

A

new buildings, equipment, intellectual property

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23
Q

investment- residential investment

A

building a new house

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24
Q

investment- changes in business inventories

A

goods that have been produced but not yet sold

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25
Q

government purchases

A

spending by federal, state, local government on goods and services

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26
Q

government purchases examples

A

teachers’ salaries, highways, aircraft carriers

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27
Q

transfer payments are NOT included in GDP, why?

A

because they do NOT result in the production of a goods or services

28
Q

the “G” in the GDP equation is

A

government purchases, not total government expenditures

29
Q

net exports

A

defined as the value of export (X) - imports (M)

30
Q

net exports equation

A

NX= X - M

31
Q

The us has negative NX which means

A

we import more than we export (trade deficit)

32
Q

since we want to count ___ production, we add up the value of goods and services sold to foreigners, and subtract off the value of the goods and services sold to americans by foreigners

A

domestic

33
Q

the subtracting of exports is really an issue of

A

accounting, does not affect GDP directly

34
Q

Imports are not inherently bad

A

accounting issue is not hurting the economy

35
Q

consumption is the largest component of GDP; within that, services are the largest component-

A

usa= “service economy”

36
Q

value added

A

the market value a firm adds to a product
-shows that the final selling price of a good must equal the sum of all values added in all steps of the production process

37
Q

what is an alternative method to measure GDP

A

value added

38
Q

household production

A

childcare, cleaning, and cooking not typically paid for with money
if done and paid for by a non-household-member, it would be counted in GDP

39
Q

the underground economy

A

“blackmarket”
trading hidden
-avoid taxes or regulations
-or because the goods and services are illegal
may be 10% or more of the economy in america, higher in low-income households

40
Q

if we are comparing GDP from year to year, the size of household production and the underground economy is probably about the same from year to year

A

GDP growth is a reasonable measure at the growth in total production

41
Q

Issues with GDP over long periods of time

A

increase in GDP may exaggerate the increase in actual total production

42
Q

in many developing countries, the informal sector is very large;

A

often above 50% of total output

43
Q

development economists say this often reflects poor government policies

A

higher taxes and regulations
low confidence in the security of private property from government seizure

44
Q

GDP per capita would not reflect

A

the value of leisure
pollution or other negative effects of pollution
crime, other social problems
distribution of income

45
Q

example of improvements that result in lower GDP per capita

A

lower crime
-allows lower spending on police, prisons, and private security
-this decreases GDP

46
Q

military spending is part of the ____ portion of GDP

A

government purchases (G)

47
Q

WWII GDP stats

A

production was very high, but mostly military goods- people weren’t better off
after WWII, GDP fell;
- but production of consumption goods rose rapidly

48
Q

nominal GDP

A

the value of final goods and services evaluated at current-year prices

49
Q

real GDP

A

the value of final goods and services evaluated
- we adjust this years number for inflation

50
Q

real and nominal GDP are ___ in the base year

A

equal

51
Q

growth figures reported in the media are the growth in real GDP

A

prices have generally increased since 2012
today: real GDP< nominal GDP
prior to 2012: real GDP> nominal GDP

52
Q

relative prices

A

a ratio of prices
asking: a good is worth how many of the other good?

53
Q

chain weighted prices

A

based on geometric means of growth rates weighted on last year prices (X) and this year prices (Y)

54
Q

chained growth rate=

A

square root X x Y

55
Q

price level

A

a measure of the average prices of goods and services in the economy

56
Q

price level, why?

A

stable prices are desirable because they allow households, firms, and government to plan for future

57
Q

GDP deflator

A

a measure of the price level, calculated by dividing nominal GDP by real GDP and multiplying by 100

58
Q

GDP deflator

A

nominal GDP/real GDP x 100

59
Q

percentage change

A

new-old/old

60
Q

percentage change in GDP deflator,

A

give us estimate of the change in price level

61
Q

gross national product (GNP)

A

production performed by citizen’s of a nation, including overseas production

62
Q

national income

A

GDP minus the consumption of fixed capital
ex. gdp-depreciation

63
Q

personal income

A

income received by households; including transfer payments, but excluded firms’ retained earnings

64
Q

disposable personal income

A

personal income minus personal tax payments; this measures the amount that households are able to spend or save

65
Q

all products must be rewarded with

A

income

66
Q

data limitations

A

there is always some “statistical discrepancy”

ECON 104 (12 decks)

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