chapter 9 Flashcards
what are household roles in the circular flow
Households provide labor to businesses and in return, they receive wages and salaries. This is a significant input in the production process. Households use a portion of their income for consumption. They buy goods and services produced by businesses, such as food, clothing, electronics, and services like healthcare and education.
what are the businesses roles in the circular flow
Businesses hire workers from households to provide the necessary labor for production.
what is gdp
gross domestic product is the total value of all the goods and services produced within a country’s borders in a specific period of time
GDP counts goods in the year they’re BLANK, regardless of the year in which they’re BLANK.
- made
- sold
Economics uses what formula to describe each type of spending
Y = C + I + G + NX
In the formula Y = C + I + G + NX what does the C stand for
Consumption: household spending on final goods and services.
➢ Clothes, shoes, food, gas, internet bill, haircuts, computers, cars, etc.
In the formula Y = C + I + G + NX what does the I stand for
Investment: spending on new capital assets that increase the economy’s productive capacity.
➢ Any long-lasting good used in a business.
➢ Research and development spending, office furniture, equipment, etc.
➢ Buying a newly built house counts as an investment (but not if you buy an existing house).
In the formula Y = C + I + G + NX what does the G stand for
Government purchases: government purchases of goods and services.
➢ Spending on schools, highways, military, vaccine research, etc.
➢ Excludes transfer payments: payments that transfer income from one person to another.
➢ Social security checks, or unemployment insurance checks.
In the formula Y = C + I + G + NX what does the NX stand for
Net exports: spending on exports minus spending on imports.
➢ Exports: goods or services produced domestically and purchased by foreign buyers.
➢ Imports: goods or services produced overseas and purchased by domestic buyers.
➢ We subtract spending on imports to offset the fact that spending on imports has already been counted in other categories.
what is value added
A concept that measures the increase in worth or value that a business or a process contributes to a product or service during its production.
what are the limitations of gdp
- Prices are not values.
- Nonmarket activities —
including household
production — are excluded. - The shadow economy is
missing. - Environmental degradation
isn’t counted. - Leisure doesn’t count.
- GDP ignores distribution.
what is the shadow economy
Refers to economic activities that happen “off the books” or outside the official view of the government. It includes all the buying and selling of goods and services, as well as employment, that isn’t reported to the government for taxation or regulation purposes.
what is nominal gdp
the total value of all goods and services produced within a country’s borders, measured in current market prices. It’s a way of calculating the economic output without adjusting for inflation.
what is real gdp
the total value of all goods and services produced within a country’s borders, adjusted for changes in the price level. It’s a way of measuring the actual, inflation-adjusted economic output.
how to calculate nominal gdp
Nominal GDP is calculated by adding up the total value of all goods and services produced within a country’s borders at current market prices. The formula is:
For example:
Nominal GDP = (Price of Cars × Number of Cars) + (Price of Phones × Number of Phones) + …
