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ECON CH 6 Flashcards

1
Q

GDP measures (3)

A
  1. total production (Y) of G&S in the economy
  2. aggregate income (Y) of everyone in the economy
  3. aggregate expenditure (AE) on G&S produced in the economy
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2
Q

GDP measures (3)

A
  1. total production (Y) of G&S in the economy
  2. aggregate income (Y) of everyone in the economy
  3. aggregate expenditure (AE) on G&S produced in the economy
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3
Q

why does income(Y)=expenditure (AE)

A

because every dollar of expenditure by a buyer is a dollar in revenue for the seller

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4
Q

GDP is a method used to measure (2)

A
  1. national output

2. national income

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5
Q

GDP definition

A

is the aggregated market value of all final goods and services produced by all factors of production located within a country in the current year (or quarter)

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6
Q

GDP only includes what

A

the final good of the production

EX: steel is not included in GDP b/c its included in the car (as the final good)

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7
Q

final goods and services refers to

A

goods and services produced for final use (or consumption) only
EX: tires you buy to replace a flat tire

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8
Q

intermediate goods are

A

goods produced by one firm for use in further processing by another firm
EX: tires mounted on the wheels of a new car before the car is sold

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9
Q

GDP does not include what (2)

A
  1. used goods
    EX: used car
  2. paper transactions
    EX: buying shares of stock
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10
Q

GDP measures the

A

output produced by factors of production located within the domestic economy

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11
Q

GNP

A

measures the output of all U.S. owned factors of production, regardless of where the output is produced
EX: chevy produced in factory in mexico would be counted in the US GNP b/c is owned by a US company

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12
Q

GDP=

A

Y=AE=C+I+G+(EXP-IMP)

C=70%
I=17%
G=20%
NX= -5%

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13
Q

the expenditure approach

A

a method of computing GDP that measures the total amount spent (AE) on domestically produced goods and services during a given period

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14
Q

the expenditure approach

A

a method of computing GDP that measures the total amount spent (AE) on domestically produced goods and services

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15
Q

the expenditure approach (GDP=AE) which is the sum of what 4 components

A
  1. personal consumption expenditures ( C )
    - durable goods, nondurable goods, services
  2. gross private domestic investment (I)
    - nonresidential investment, residential investment, change in inventories
  3. government expenditures (G)
    - federal, state, and local
  4. net exports (NX=EX-IM)
    - exports and imports
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16
Q

the expenditure approach (GDP=AE) which is the sum of what 4 components

A
  1. personal consumption expenditures ( C )
    - durable goods, nondurable goods, services
  2. gross private domestic investment (I)
    - nonresidential investment, residential investment, change in inventories
  3. government expenditures (G)
    - federal, state, and local
  4. net exports (NX=EX-IM)
    - exports and imports
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17
Q

unsold output goes into

A

inventory investment, whether it was intentional or not

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18
Q

change in inventories=

A

GDP-total sales

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19
Q

debbie spends $200 to buy her husband dinner at the finest restaurant in Boston

A

Consumption ( C ) and GDP will rise by $200

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20
Q

Sabrina spends $1800 on a new laptop in her publishing business. the laptop was build in china

A

investment (I) rises by 1800, net exports fall by 1800, and GDP is unchanged

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21
Q

Jane spends $1200 on a computer to use in her editing business. she got last years model on sale for a great price from a local manufacture

A

current GDP and investment do not change, b/c the computer was built last year

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22
Q

%changeY

A

growth rate

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23
Q

%changeY

A

growth rate

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24
Q

why does income(Y)=expenditure (AE)

A

because every dollar of expenditure by a buyer is a dollar in revenue for the seller

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25
Q

GDP is a method used to measure (2)

A
  1. national output

2. national income

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26
Q

GDP definition

A

is the aggregated market value of all final goods and services produced by all factors of production located within a country in the current year (or quarter)

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27
Q

GDP only includes what

A

the final good of the production

EX: steel is not included in GDP b/c its included in the car (as the final good)

28
Q

final goods and services refers to

A

goods and services produced for final use (or consumption) only
EX: tires you buy to replace a flat tire

29
Q

intermediate goods are

A

goods produced by one firm for use in further processing by another firm
EX: tires mounted on the wheels of a new car before the car is sold

30
Q

GDP does not include what (2)

A
  1. used goods
    EX: used car
  2. paper transactions
    EX: buying shares of stock
31
Q

GDP measures the

A

output produced by factors of production located within the domestic economy

32
Q

GNP

A

measures the output of all U.S. owned factors of production, regardless of where the output is produced
EX: chevy produced in factory in mexico would be counted in the US GNP b/c is owned by a US company

33
Q

GDP=

A

Y=AE=C+I+G+(EXP-IMP)

C=70%
I=17%
G=20%
NX= -5%

34
Q

why do we care about GDP (2)

A
  1. most important macro variable (statistic)
  2. best recipe for happiness macro has to offer
    - large GDP enables people to enjoy better schools, cleaner environment, better health care, and longer life
    - many indicators of the quality of life are positively correlated with GDP
35
Q

the expenditure approach

A

a method of computing GDP that measures the total amount spent (AE) on domestically produced goods and services

36
Q

Expenditure (AE)=

A

Aggregate income (Y)=Aggregate output (Y)

37
Q

the expenditure approach (GDP=AE) which is the sum of what 4 components

A
  1. personal consumption expenditures ( C )
    - durable goods, nondurable goods, services
  2. gross private domestic investment (I)
    - nonresidential investment, residential investment, change in inventories
  3. government expenditures (G)
    - federal, state, and local
  4. net exports (NX=EX-IM)
    - exports and imports
38
Q

unsold output goes into

A

inventory investment, whether it was intentional or not

39
Q

change in inventories=

A

GDP-total sales

40
Q

debbie spends $200 to buy her husband dinner at the finest restaurant in Boston

A

Consumption ( C ) and GDP will rise by $200

41
Q

Sabrina spends $1800 on a new laptop in her publishing business. the laptop was build in china

A

investment (I) rises by 1800, net exports fall by 1800, and GDP is unchanged

42
Q

Jane spends $1200 on a computer to use in her editing business. she got last years model on sale for a great price from a local manufacture

A

current GDP and investment do not change, b/c the computer was built last year

43
Q

general motors builds $500 mill worth of cars, but consumers only buy $470 mill of them

A

consumption rises by 470 mill, inventory investment rises by 30 mill, and GDP rises by 500 mill

44
Q

base year

A

the year chosen for the weights in a fixed-weight procedure

45
Q

nominal GDP

A

values output using current year prices (current dollars or nominal dollars)

  • not corrected for inflation
  • year=(PxQ)+(PxQ)
46
Q

real GDP

A

values output using the prices of the base year

  • is corrected for inflation
  • base year= (base PxQ)+(base PxQ)
47
Q

base year (fixed weight) procedure

A

use the prices of the same year (base year) as weights when determining the value of real GDP
-a weight is the importance attached to an item within a group of items

48
Q

chain weight procedure

A

uses prices (weights) of two adjacent years

49
Q

%change NGDP

A

NGDP big/little= NGDP big- NGDP little

divided by NGDP little x100

50
Q

economics are concerned with how the overall price level ℗ changes b/c

A

they want to keep inflation under control

51
Q

calculate inflation

A

%changeP big/little= P big- P little divided by P little x100

52
Q

overall price level ℗ is calculated by using two methods

A
  1. the GDP deflator

2. the consumer price index

53
Q

the GDP deflator in a year

A

Pyear= GDP delf year= NGDP year/RGDP year x100

54
Q

GDP / Capita = (3)

A
  1. economic well being
  2. national welfare
  3. standard of living
55
Q

GDP does not include (6)

A
  1. the quality of the environment
  2. leisure time
  3. non-market activity
  4. an equitable distribution of income
  5. underground economy (shadow economy)
  6. many, many other “thinks” that make our lives worth living
56
Q

why do we care about GDP (2)

A
  1. most important macro variable (statistic)
  2. best recipe for happiness macro has to offer
    - large GDP enables people to enjoy better schools, cleaner environment, better health care, and longer life
    - many indicators of the quality of life are positively correlated with GDP
57
Q

nonresidential investment

A

expenditures by firms for machines, tools, plants, and so on

58
Q

residential investment

A

expenditures by households and firms on new houses and apartment buildings

59
Q

change in business inventories

A

the amount by which firms` inventories change during a period. inventories are the goods that firms produce now but intend to sell later
-(production-sales)

60
Q

depreciation

A

the amount by which an assets value falls in a given period

61
Q

net investment

A

gross investment minus depreciation

62
Q

gross investment

A

the total value of all newly produced capital goods produced in a given period

63
Q

national income

A

the total income earned by the factors of production owned by a country`s citizen

64
Q

dispositional personal income or after-tax income

A

personal income minus personal income taxes. the amount that households have to spend or save

65
Q

current dollars

A

the current prices we pay for goods and services

-negatively related with the central producer

66
Q

base year

A

the year chosen for the weights in a fixed-weight procedure

67
Q

5 steps to calculate CPI and inflation rate

A
  1. Q in the basket
  2. P for GS in the basket
  3. calculate COD
  4. CPI year= COB year/ COB base x100
  5. inflation rate= %change overall price level

Econ 104 (15 decks)

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