Exam 1 (P.44-52) Flashcards
What are the 3 GDP accounting approaches?
The Output Approach, the Expenditure Approach and the Income Approach.
In the Output approach, what is the total value of GDP made up of?
The total value of GDP is the total of all the values that intermediate stages of production gives.
What does the Expenditure approach represent?
The expenditure approach represents how much decision-making groups are spending.
What is the Expenditure approach made up of?
Y=C+I+G+NX,
where Y=Real GDP, C=Consumption, I=gross private domestic business investment, G=government spending, NX=net exports (exports-imports)
What is another phrase for net exports?
Trade balance
What is the largest component of total spending?
The largest component of total spending is consumer spending (mainly non-durables and services)
What is the smallest component of total spending? Why is it significant?
The smallest component of total spending is spending spending on inventories. This is significant because inventories are a key signal to producers about when to increase or decrease total production. Changes in inventories often triggers moves into recession or recovery.
What does the Income approach show us?
The Income approach shows us how much of each type of income is being earned
What are the 7 components of the Income approach?
Household incomes:
1) Wages, salaries & supplementary labour income
2) Net interest income
Firm incomes:
3) Corporate profits
4) Rent
5) Income of non-farm unincorporated businesses
6) Capital Consumption Allowance (Depreciation)
Government Incomes:
7) Net indirect taxes
What is the formula for Net Domestic Product?
GDP - Depreciation
What is the formula for Net Investment
Gross Private Domestic Investment - Depreciation
What is disposable income?
Disposable income is personal income - taxes and deductions
Income or Expenditure: Wages, salaries and supplementary labour income
Income
Income or Expenditure: Consumption
Expenditure
Income or Expenditure: Net indirect taxes
Income
