Macro Unit 1 Flashcards
Aggregate demand
total demand of everyone in a country
3 indicators of an economy
- economic growth
- level of employment
- price stablilty
4 sectors
all participate in the production of goods (supply and demand)
- households
- businesses
- government
- foreign entities
Households
Individuals live together and make collective decisions
Consume goods and services
Businesses
Private producers of goods and services
Organize factors of production to produce goods
private sector
Government
Political units of a country
Consumes some output/organizes some factors of production to produce some goods
public sector
Foreign entities
All economies outside the economy being studied
Comsumes/produces output
international sectpr
In an economy, income must equal…
Why?
expidenture
Every dollar one perosn spends on a goods contributes to the income of another
GDP
Gross domestic product
Market value of all final goods and services produced within a country in a given period of time
GDP
“Market value”
GDP uses market prices to measure the amount people are willing to pay for different goods, prices reflect the value of the good.
GDP
“All”
GDP includes all items produced in the economy and sold in the markets
GDP
“Final”
Includes value of final goods only, not intermediate goods. If a card is produced the paper used to make it (the intermediate good) is not included, but the final product (the card) includes both the paper and the good
GDP
“Goods and services”
Includes both tangible and nontangible goods
GDP
“Produced”
Only includes goods and services currently produced, not transactions of items produced in the past
GDP
“Within a country”
Measures value of production within the geographical confines of a country, only domestic goods
GDP
“In a given period of time”
Measures value of production within a specific time period
GDP=
C + I + G + NX
C
Consumption: spending by households on goods and services (does NOT include housing).
Includes durable and nondurable goods
I
Investment: spending on capital equipment, inventories, and structures (includes housing)
G
Government purchases: spending on goods and services by local, state, and federal governments
Does not include transfer payments such as social security
NX
Net exports: spending on domestically prododuced goods by foreigners
exports-imports
Inventories
Goods are added to GDP when they enter inventories
Real GDP
measured at constant priced ADJUSTED FOR INFLATION
Nominsl GDP
measured at current prices NOT ADJUSTED FOR INFLATION
