Chapter 8 Flashcards
Total income
The yearly amount earned by the nation’s resources (factors of production). Total income therefore includes wages, rent, interest payments, and profits that are received by workers, landowners, capital owners, and entrepreneurs respectively.
National income accounting
A measurement system used to estimate national income and it’s components; one approach to measuring an economy’s aggregate performance
Final goods and services
Goods and services that are at their final stage of production and will not be transformed into yet other goods or services. For example, wheat is not ordinarily considered a final good because it is usually used to make a final good, bread.
Gross domestic product (GDP)
The total market value of all final goods and services produced by factors of production located within a nation’s borders
Intermediate goods
Goods used up entirely in the production of final goods
Value added
The dollar value of an industry’s sales minus the value of immediate goods (for example, raw materials and parts) used in production
Expenditure approach
Computing GDP by adding up the dollar value at current market prices of all final goods and services
Income approach
Measuring GDP by adding up all components of national income, including wages, interest, rent, and profits
Durable consumer goods
Consumer goods that have a life span of more than three years
Nodurable consumer goods
Consumer goods that are used up within three years
Services
Mental or physical labor or help purchased by consumers. Examples are the assistance of physicians, lawyers, dentists, repair personnel, house cleaners, educators, retailers, and wholesalers; things purchased or used by consumers that do not have physical characteristics
Gross private domestic investment
The creation of capital goods, such as factories and machines, that can yield production and hence consumption in the future. Also included in this definition are changes in business inventories and repairs made to machines or buildings
Investment
Any use of today’s resources to expand tomorrow’s production or consumption
Producer durables or capital goods
Durable goods having an expected service life of more than three years that are used by business to produce other goods and services
Fixed investment
Purchases by businesses of newly produced producer durables, or capital goods, such as production machinery and office equipment
Inventory investment
Changes in the stocks of finished goods and goods in process, as well as changes in the raw materials that businesses keep on hand. Whenever inventories are decreasing, inventory investment is negative; whenever they are increasing, inventory investment is positive
Depreciation
Reduction in the value of capital goods a one-year period due to physical wear and tear and also to obsolescence; also called capital consumption allowance
Net domestic product (NDP)
GDP minus depreciation
Capital consumption allowance
Another name for depreciation, the amount that businesses would have to save in order to take care of the deterioration of machines and other equipment
Net investment
Gross private domestic investment minus an estimate of the wear and tear in the existing capital stock. Net investment therefore measures the change in the capital stock over a one-year period
Gross domestic income (GDI)
The sum of all income-wages, interest, rent, and profits-paid to the four factors of production
Indirect business taxes
All business taxes except the tax on corporate profits. Indirect
Business taxes include sales and business property taxes
Nonincome expense items
The total of indirect business taxes and depreciation
National income (NI)
The total of all factor payments to resource owners. It can be obtained from net domestic production (NDP) by subtracting indirect business taxes and transfers and adding net U.S. Income earned abroad and other business income adjustments.
Personal income (PI)
The amount of income that households actually receive before they pay personal income taxes
Disposable personal income (DPI)
Personal income after postal income taxes have been paid
Nominal values
The values of variables such as GDP and investment expressed in current dollars, also called money values; measurement in terms of the actual market prices at which goods and services are sold
Real values
Measurement of economic values after adjustments have been made for changes in the average of prices between years
Constant dollars
Dollars expressed in terms of real purchasing power using a particular year as the base or standard of comparison, in contrast to current dollars.
Foreign exchange rate
The price of one currency in terms of another
Purchase power parity
Adjustment in exchange rate conversions that takes into account differences in the true cost of living across countries
