Macro Economics Chapter 05 Power Point Flashcards
What is national income accounting?
•The system used to measure the aggregate income and expenditures for a nation
Who was Simon Kuznets?
•He explained the first national accounting system, he is called the father of GDP
What is gross domestic product?
•GDP is the most widely reported measure of a nation’s economic performance
What does GDP measure?
•The market value of all final goods and services produced in a nation during a period of time, usually a year
What is an advantage of using GDP?
•GDP measures value using dollars, rather than a list of the number of goods and services
Does GDP measure secondhand transactions?
•No, current GDP does not include the sale of a used car or the sale of a home constructed some years ago
Does GDP measure nonproductive financial transactions?
•No, GDP does not count purely private or public financial transactions such as giving gifts, stocks, bonds, or transfer payments
What is a transfer payment?
•A government payment to individuals, not in exchange for goods or services currently produced
What are intermediate goods?
•Goods and services used as inputs for production of final goods
Does GDP count intermediate goods?
•No, to avoid double counting, GDP only measures final goods and services
What are final goods?
•Finished goods and services produced for the ultimate user
Does GDP measure the whole economy?
•Yes, GDP includes markets for products, resources, consumers, workers, and businesses
What is a circular flow model?
•A model that show us how all the pieces of the puzzle fit together. Business: “Factor Markets” through “factors of production” to “Businesses” through “supply” to “Product Markets” through “goods and services” to “Households”. Society: “Factor Markets” through “demand” to “Households” through “spending” to “Product Markets” through “demand” to “Business” though “factor payments” to “Factor Markets”
What additional sectors does a complex circular flow model contain?
•Financial markets•Government•Foreign markets
What is a flow?
•A rate of change in a quantity during a given time period
What is a stock?
•A quantity measured at one point in time
What are the two approaches we use to measure GDP?
•Expenditure•Income
What is the expenditure approach?
•The national income accounting method that measures GDP by adding all the spending for final goods and services
What are the four sectors of GDP?
•Consumption•Investment•Government•Foreign (X - M)
What is the income approach?
GDP = C + I + G + (X -M) •The method that measures GDP by adding all incomes
What are the income components of GDP?
GDP = C + I + G + (X -M) GDP = compensation of employees + rents + profits + net interest + indirect taxes + depreciation
What is compensation of employees?
•Income earned from wages, salaries, and certain supplements paid to labor
What is rental income of persons?
•Rent and royalties received by property owners who permit others to use their assets
What are two income categories?
•Proprietors’ income•Corporate profits
What is proprietors’ income?
•All forms of income earned by unincorporated businesses
What are corporate profits?
•All income earned by the stockholders of corporations regardless of whether stockholders receive it
What is net interest?
•Interest earned from loans to businesses
What are indirect business taxes?
•Taxes levied as a percentage of the prices of goods sold and therefore collected as part of the revenue received by firms
What is depreciation?
•An allowance for the capital worn out producing GDP
What are shortcomings of GDP?
•Nonmarket transactions•Distribution, kind, & quality of products•Neglect of leisure time•Underground economy•Economic bads
What is a conclusion?
•GDP is a quantitative, rather than qualitative, measure of the output of goods and services
What other national accounts measure economic performance?
•National Income•Personal Income•Disposable Personal Income•Nominal and Real GDP•GDP Chain Price Index
What is national income?
•NI is the total earned by resource owners, including wages, rents, interest, and profits
What is personal income?
•PI is the total income received by households that is available for consumption, saving, and payment of personal taxes
What is disposable personal income?
•DI is the amount of income that households have to spend or save after payment of personal taxes
What is nominal GDP?
•The value of all final goods based on the prices existing during the time period of production. Real GDP =nominal GDP x 100/ GDP chain price index
What is real GDP?
•The value of all final goods produced during a given time period based on the prices existing in a selected base year. Real GDP =nominal GDP x 100/ GDP chain price index
What is the chain price index?
•A measure that compares changes in the prices of all final goods during a given period to the prices of those goods in a base year. Real GDP =nominal GDP x 100/ GDP chain price index
