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macroeconomics > EXAM 2 > Flashcards

EXAM 2 Flashcards

1
Q

gross domestic product (GDP)

A

the MARKET VALUE of all FINAL GOODS produced IN A COUNTRY in a PERIOD OF TIME

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2
Q

market value

A

value to buyers / cost of production of all durable and non-durable goods/services

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3
Q

market value calculation

A

price x quantity

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4
Q

what is included in GDP?

A

final goods and services,
produced in the country’s borders,
produced in the measured period, not after

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5
Q

what is not included in GDP?

A

intermediate goods,
used goods (resales),
financial transactions (stocks & bonds),
illegal activities,
unpaid household chores

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6
Q

final goods and services

A

sold to end consumers, calculated in GDP

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7
Q

intermediate goods

A

used up in production, not calculated in GDP

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8
Q

durable goods

A

last more than one year

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9
Q

non-durable goods

A

last less than one year

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10
Q

nominal GDP

A

measured in CURRENT PRICES, reflects DOLLAR VALUE of all goods and services produced

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11
Q

real GDP

A

measured in CONSTANT PRICES (base year), reflected PHYSICAL QUANTITY of goods and services produced

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12
Q

real GDP calculation

A

price (base) x quantity (current)

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13
Q

4 components of total spending

A

consumption + investment + government + net exports

(C+I+G+NX)

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14
Q

consumption (C)

A

spending by household on final goods and services, except the purchase of new housing (investment)

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15
Q

investment (I)

A

business spending on equipment, investments, and structures (includes new housing)

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16
Q

government purchases (G)

A

government spending on goods and services (defense, salaries)

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17
Q

what is not included in gov’t purchases?

A

transfer and investment payments (social security, medicare, national debt interest)

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18
Q

net exports (NX)

A

exports minus imports

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19
Q

consumer price index (CPI)

A

measures overall level of prices for goods/services bought by a typical consumer (baskets)

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20
Q

3 measurement biases

A

substitution bias,
new goods,
quality improvement/changes

21
Q

substitution bias

A

ignores consumer switching to cheaper alternatives

22
Q

new goods

A

increases choices, but CPI doesn’t account for them immediately

23
Q

expenditure calculation

A

price x FIXED quantity

24
Q

CPI calculation

A

exp. current / exp. base

25
Q

inflation calculation given CPI

A

(new CPI - prev CPI) / (prev CPI) x 100

26
Q

deflating

A

convert nominal to real values to account for inflation

27
Q

delating an interest rate calculation

A

real rate = nominal - inflation rate

28
Q

indexing

A

adjusting payments according to CPI to maintain purchasing power

29
Q

bonds

A

debt instrument where the issuer (borrower) promises to pay interest and principal

30
Q

stocks

A

ownership in a company, enlisting the holder to a share of profits (dividends)

31
Q

saving

A

income NOT SPENT on consumption; provides funds for investment

S = current income (Y) - consumption (C) - gov’t spending (G)

32
Q

saving calculation

A

current income - spending for current need

33
Q

private saving calculation

A

(Y - T) - C

(production - tax) - consumption

34
Q

what is included in private saving?

A

personal/household,
corporate

35
Q

what is included in personal/household saving?

A

life cycle, precautionary, bequest

36
Q

what is included in corporate saving?

A

profit, retained earnings, for future investment

37
Q

public saving calculation

A

T - G

tax revenue - government spending

38
Q

tax revenue > government spending

A

surplus

39
Q

tax revenue < government spending

A

deficit

40
Q

4 factors affecting bond interest rate

A
  1. credit risk
  2. term to maturity
  3. tax treatment
  4. inflation protection
41
Q

credit risk

A

higher the risk, higher the interest rate

42
Q

term to maturity

A

long-term bonds, higher interest rate

43
Q

tax treatment

A

tax-exempt bonds (municipals), lower interest rate

44
Q

inflation protection

A

if prices increase, payments increase proportionally

45
Q

when do saving curves shift?

A

when household or government funds change

46
Q

what happens to saving when government spending decreases?

A

saving also decreases

47
Q

when do investment curves shift?

A

when firms change investment plans

48
Q

taxes net of transfers (T) calculation

A

T = taxes - transfer payments

macroeconomics (5 decks)

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