Chapter 9 Flashcards
Final Goods
Those sold to a final user
Intermediate Goods
Those not sold to a final user
Gross Domestic Product (GDP)
Current market value of all final goods and services produced within country’s borders in one year (How big an economy is)
Transfer Payments
Taking from one person and giving to another, but not in return for any good or service (social security, unemployment insurance, and food stamps)
Bads
Unwanted phenomena such as disease, crime, and garbage
Keynesians says bad may increase GDP because…
we pay to lessen their effects (such as hiring policemen to combat new crime wave)
The Expenditure Approach
Add up current market values of all final goods and services
Income Approach
Adds up all payments to factors of production (wages, interest, rent, and profits generated by production)
Income =
Output
Consumption
Spending by consumers on nondurable goods, durable goods, and services
Investment
Spending by business on capital, changes in business inventories, and spending on new residential housing
Government Purchases
Spending by all levels of gvt on goods and services
Net Exports
Exports-imports
Government purchases is
second largest component
In calculating GDP
we use current market prices
Real GDP
What GDP would be if prices had remained the same as they were in the base year
Real GDP only reflects
quantity changes, not price changes
To see how well economy is doing, we use
real GDP to remove effects of inflation and only look at number of goods and services we are producing.
Economic Growth
percentage change in real GDP
Recession
Two successive quarters (3 month periods) of negative economic growth
Business Cycle
Describes ups and downs of the economy
Expansion
Increase in real GDP
at PEAK of business cycle,
real GDP is at temporary high
when real GDP falls,
economy is suffering a CONTRACTION
Trough
real GDP is at temporary low
as real GDP grows from trough,
RECOVERY is occurring
Per Capita GDP
GDP divided by the population; illustrates wellbeing of ppl in an economy
Best measure available, but not perfect
per capita gdp
In evaluating measure of economic health,
level of economic achievement and economic growth must be considered.
economic growth is related to
change in economic freedom
