Economics for Managers Chapter 11 Flashcards
Gross Domestic Product
The comprehensive measure of the market value of all currently produced final goods and services within a country in a given period of time by domestic and foreign-supplied resources.
Circular Flow
The framework for the aggregate macroeconomic model, which portrays the level of economic activity as a flow of expenditure form consumers to firms or producers as consumers purchase goods and services produced by these firms. This flow then returns to consumers as income received from the production process.
Mixed Economy
An economy that has both a private (household and firm) sector and a public (government) sector.
Open Economy
An economy that has both domestic and foreign sectors.
Expenditure or Output Approach
Measuring overall economic activity by adding the expenditure on the output produced in the economy.
Aggregate Expenditure
The sum of consumption, investment, government, and net export spending on the total amount of real output produced in an economy in a given period of time, which equals the income generated from producing and selling that output.
Earning or Income Approach
Measuring overall economic activity by adding the earnings or income generated by selling the output produced in the economy.
National Income Accounting System
A system of accounts developed for each country, based on the circular flow,, whose purpose is to measure the level of economic activity in that country.
National Income and Product Accounts
The US national income accounting system, operated by the Bureau of Economic Analysis (BEA) in the US Department of Commerce.
Final Goods and Services
Goods and services that are sold to their end-users.
Intermediate Goods and Services
Goods and services that are used in the production of other goods and services.
Value-added Approach
A process of calculating the value of the final output in an economy by summing the value added in each stage of production (i.e., raw materials to semifinished goods to final products).
Underground Economy
Economic transactions that cannot be easily measured because they are not reported on income tax returns or other government economic analysis.
Imputed Value
An estimated value for nonmarket transactions, such as the rental value of owner-occupied housing, included in GDP.
Transfer Payments
Payments that represent the transfer of income among individuals in the economy, but do not reflect the production of new goods and services.
Nominal GDP
The value of currently produced final goods and services measured in current year prices.
Real GDP
The value of currently produced final goods and services measured in constant prices, or nominal GDP adjusted for price level changes.
GDP Deflator
A measure of price changes in the economy that compare the price of each year’s output of goods and services to the price of that same output in a base year.
Business Cycles
The periodic increases and decreases in overall economic activity reflected in production, employment, profits, and prices.
Expansion
The rising phase of a business cycle, in which the direction of a series of economic indicators turns upward.
Recession
The falling phase of a business cycle, in which the direction of a series of economic indicators turns downward.
Personal Consumption Expenditures
The total amount of spending by consumers on durable goods, nondurable goods, and services in a given period of time.
Durable Goods
Commodities that typically last three or more years, such as automobiles, furniture, and household appliances.
Nondurable Goods
Commodities that last less than three years and may be consumed very quickly, such as food, clothing, and gasoline.
Services
Noncommodity items, such as utilities, public transportation, private education, medical care, and recreation.
Gross Private Domestic Investment Spending
The total amount of spending on nonresidential structures, equipment, and software; residential structures; and business inventories in a given period of time.
Business Fixed Investment
Spending on the structures, equipment, and software that provide the industrial capacity to produce goods and services for all sectors of the economy.
Residential Fixed Investment
Spending on newly constructed housing units, major alterations of and replacements to existing structures, and brokers’ commissions.
Change in Business Inventories
Changes in the amount of goods produced, but not sold in a given year.
Government Consumption Expenditures and Gross Investment
The total amount of spending by federal, state, and local governments on consumption outlays for goods and services and for depreciation charges for existing structures and equipment and on investment capital outlays for newly acquired structures and equipment in a given period of time.
Net Export Spending
The total amount of spending on exports minus the total amount of spending on imports in a given period of time.
Export Spending
The total amount of spending on goods and services currently produced in one country and sold abroad to residents of other countries in a given period of time.
Import Spending
The total amount of spending on goods and services currently produced in other countries and sold to residents of a given country in a give period of time.
National Income
Income that is generated from the sale of the goods and services that are produced in the economy and that is paid to the individuals and businesses who supply the inputs or factors of production.
Compensation of Employees
The wages and salaries and the fringe benefits paid by employers to employees.
Proprietors’ Income
The income of unincorporated businesses, such as medical practices, law firms, small farms, and retail stores.
Rental Income
The income households receive from the rental of their property.
Corporate Profits
The excess of revenues over costs for the incorporated business sector of the economy.
Net Interest
The interest private businesses pay to households for lending money to the firms minus the interest businesses receive plus interest earned from foreigners.
Personal Income
Income received by households that forms the basis for personal consumption expenditures.
Disposable Income
Personal household income after all taxes have been paid.
Saving
The portion of households’ disposable income that is not spent on consumption goods and services.
Relative Prices
The price of one good in relation to the price of another good.
Absolute Price Level
A measure of the overall level of prices in the economy using various indices to measure the prices of all goods and services.
Inflation
A sustained increase in the price level over time.
Deflation
A sustained decrease in the price level over time.
Consumer Price Index (CPI)
A measure of the combined price consumers pay for a fixed market basket of goods and services in a given period relative to the combined price of an identical basket of goods and services in a base period.
Core Rate of Inflation
A measure of absolute price changes that excludes changes in energy and food prices.
Producer Price Index (PPI)
A measure of the prices firms pay for crude materials; intermediate materials, supplies, and components; and finished goods.
Labor Force
Those individuals 16 years of age and over who are working in a job or actively seeking employment.
Employed
Persons 16 years of age and over who, in the survey week, did any work as an employee; worked in their own business, profession, or farm; or worked without pay at least 15 hours in a family business or farm.
Unemployed
Persons 16 years of age and over who do not currently have a job, but who are actively seeking employment.
Discouraged Workers
Persons 16 years of age and over who are not currently seeking work because they believe that jobs in their area or line of work are unavailable or that they would not qualify for existing job openings.
Natural Rate of Unemployment
The minimum level of unemployment that can be achieve with current institutions without causing inflation to accelerate.
Equilibrium Level of Output and Income
The level of aggregate output and income where there is a balance between spending and production decisions and where the economy will stay unless acted on by other forces.
Fiscal Policy
Changes in taxes and spending by the executive and legislative branches of a country’s national government that can be used to either stimulate or restrain the economy.
Monetary Policy
Policies adopted by a country’s central bank that influence interest rates and credit conditions, which, in turn, influence consumer and business spending.
Balance of Payments Issues
Issues related to the relative value of different countries’ currencies and the flow of goods, services, and financial assets among countries.
Currency Exchange Rate
The rate at which one country’s currency can be exchanged for that of another.
Trade Balance
The relationship between a country’s exports and imports, which may be either positive (exports exceed imports) or negative (imports exceed exports).
Capital Flows
The buying and selling of existing real and financial assets among countries.
