Chapter 8 Flashcards
gross domestic product
the market value of all final goods and services produced in a country during a period of time, typically one year
microeconomics
the study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices
macroeconomics
the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth
business cycle
alternating periods of economic expansion and economic recession
expansion
the period of a business cycle during which total production and total employment are increasing
recession
the period of a business cycle during which total production and total employment are decreasing
economic growth
the ability of the economy to produce increasing quantities of goods and services
inflation rate
the percentage increase in the price level from one year to the next
who compiles the data to determine GDP
the bureau of economic analysis in the department of commerce
When does the BEA issue reports on GDP
every 3 months
how do we measure production
taking the value, in dollar terms of all the goods and services produced
GDP includes _____ but not _______
final goods and services; intermediate goods and services
final good or service
a good or service purchased by a final user
intermediate good or service
a good or service that is an input into another good or service, such as a tire on a truck
calculating GDP
- multiply the amount of goods by the price of each
2. add together
firms sell goods and services to what three groups
domestic households, foreign firms and households,and the government
exports
expenditures by foreign firms and households on domestically produced goods and services
factors of production
firms use them to produce goods, they are: labor, capital, natural resources, and entrepreneurship
households supply the factors of production to firms in exchange for
income
the four categories of income are
wages, interest, rent, and profit
firms pay wages to households in exchange for
labor service
firms pay interest for the use of
capital
firms pay rent for
natural resources such as land
profit
the income that remains after a firm had paid wages, interest, and rent, the return to entrepreneurs and business owners for bearing the risk of producing and selling goods and services
transfer payments
payments by the government to households for which the government does not receive a new good or service
imports
spending on foreign produced goods and services
the four categories of GDP
consumption, investment, government purchases, and net exports
consumption
spending by households on goods and services not including spending on new houses (services, durable goods, non-durable goods) not new houses
investment
spending by firms on new factories, office buildings, machinery, and additions to inventories, plus spending by households and firms on new houses
government purchases
spending by federal, state, and local governments on goods and services
net exports
exports minus imports
GDP equation
Y=C+I+G+NX
spending on research and development is including in
the investment part of GDP
value added
the market value a firm adds to a product
what two types of production does GDP not include
household production and the underground economy
the underground economy
buying and selling of goods and services that is concealed from the government to avoid taxes or regulations or because the goods and services are illegal
why is GDP not a good measure of well being
the value of leisure is not included in GDP, GDP is not adjusted for pollution or other negative effects of production, GDP is not adjusted for crime and other social problems, GDP measure the size of the pie but not how the pie is divided
nominal GDP
the value of final goods & services evaluated at current year prices
real GDP
the value of final goods and services evaluated at base year prices
price level
the measure of the average prices of goods and services in the economy
GDP deflator
a measure of the price level
GDP deflator formula
(nominal/real) x 100
national income accounting
the methods the BEA uses to track total production and total income in the economy
gross national product
the value of final goods and services produced by the residents of the united states, even if the production takes place outside the U.S
national income
subtracting consumption of fixed capital from GDP
personal income
income received by households
disposable personal income
equal to personal income minus personal tax payments
