GDP TEST Flashcards
What is an intermediate good?
A good that is used in production
What things aren’t counted for GDP?
Transfer payments, second hand sales, and security transactions
What are public transfer payments?
Social security, welfare, and veteran’s benefit
What are private transfer payments?
Gifts or inheritances
What are secondhand sales?
The resale of good already counted when new
What are security transactions?
Stocks and bonds
What is the definition of GDP?
Market value of the total good and services produced within the boundaries of the US
Why do we measure GDP?
To create public policy using predictions about the economy, GDP helps us determine where we are in the business cycle
What is the GDP formula?
Consumption+gov. Spending+gross domestic investment+net foreign investment
How do you calculate net foreign investment?
Exports minus imports
What is net investment?
Gross- depreciation
What is another term for depreciation?
Consumption of fixed capital
How do you calculate NDP?
GDP minus depreciation
What is disposable income?
Personal income minus taxes
What are the 3 things that companies can do with corporate profits?
Pay income taxes, distribute as dividends, or keep the money and reinvest
What is a dividend?
A return in an investment
What is value added tax?
The difference between what you payed and what you sold a product for
What is disposable income?
Income after taxes
What is the only thing transfer payments are included in?
Personal income
What is nominal?
The current level or current value
What is real?
The value adjusted for inflation
What is the real GDP formula?
Base year times output
What is real GDP used for?
The measure the standard of living
How do you calculate nominal GDP?
Output times price
How do you calculate price index?
Base year times price
What is the order of the business cycle?
Peak, recession, depression, expansion
What is another word for the peak period?
Prosperity
What is another word for the recession period?
Contraction
What is another word for the expansion period?
Recovery
What is the rule of 70 for inflation?
70/the annual percent rate of inflation
It calculates the number of years it takes to double prices
What is a final good?
A good that is sold for final use by the consumer
What is GDP gap?
Below the line; the higher the unemployment rate the larger the the GDP gap
What is negative GDP gap?
When the economy’s outputs exceeds its potential; this eventually causes inflation and can’t not be sustained
What is another term for real GDP?
Real domestic output
What is Okun’s law?
For every 1% the unemployment rate exceeds the natural rate, a 2% GDP gap occurs
What is the lead indicator of a recession?
The sale of durable goods
What causes demand pull inflation?
To much money is the economy wanting goods that aren’t there, economy seeks more production once it has already reached full unemployment
What is phase 1 of demand pull?
The price stays the same while the economy is experiencing growth
What happens during phase 2 of demand pull?
Prices go up and the economy is still growing the trade off for growth is moderate inflation
What happens durin. The 3rd phase of demand pull?
The demand goes up but can’t produce anymore so prices continue to go up
What is cost push inflation?
Supply side inflation; prices rise while output and employment are declining; oil is the only product that can cause this
What would you rather recieve as a gift during hyperinflation?
Things of value rather than money or checks
What happens during the peak of the business cycle?
GDP is up
Unemployment is down
Price levels go up
What happens during recession of the business cycle?
GDP goes down
Unemployment goes up
Price levels stay the same
What happens during depression?
GDP goes down
Unemployment goes up
And price levels go down
What happens during expansion?
GDP goes up
Unemployment goes down
And price level go up
