Macroeconomics - Ch 7 Flashcards
National income accounting
measures the economy’s overall performance; compiled by the Bureau of Economic Analysis (BEA)
Aggregate output
primary measure of the economy’s performance; annual total output of goods/services
Gross Domestic Product (GDP)
aggregate output as the dollar value of all final goods and services produced within the borders of a country during a specific period of time, typically a year
Intermediate goods
products purchased for resale or further processing or manufacturing
Final goods
products purchased by their end users
Multiple counting
counting the value of intermediate goods as well as final good; distorts GDP
Value added
market value of a firm’s output less the value of the inputs the firm has bought from others
Nonproduction transactions
excluded from GDP; have nothing to do with the generation of final goods; two types - purely financial transactions & secondhand sales
Purely Financial Transactions
Public transfer payments, private transfer payments, stock market transactions
Public transfer payments
social security payments, welfare payments, veterans’ payments that the government makes directly to households
Private transfer payments
money that parents give children, cash gifts given during holidays; produce no output
Stock market transactions
buying and selling of stocks and bonds; “swapping paper”
Secondhand sales
contribute nothing to production; excluded from GDP; ex. selling a used car to a friend
Output (expenditures) approach
GDP as the sum of all the money spent in buying it
Earnings (allocation) (income) approach
GDP in terms of the income derived or created from producing it
Personal consumption expenditures (C)
consumption expenditures by households on goods and services; durable goods, nondurable goods, services
Durable goods
10% of personal consumption expenditures; products that have expected lives of 3 years or more (autos, furniture, refrigerators)
Nondurable goods
30% of personal consumption expenditures; products with less than 3 years of expected life (food, clothing, gasoline)
Services
60% of personal consumption expenditures; work done by lawyers, hair stylists, doctors, mechanics, etc.
Service economy
US economy; due to high % of personal consumption expenditures on services (60%)
Gross private domestic investment
all final purchases of machinery, equipment, and tools by business enterprises, all construction, changes in inventories (unsold goods = increase in inventory); used to tally up GDP
Net private domestic investment
includes only investment in the form of added capital; = gross investment - depreciation; negative when gross investment is less than depreciation (divesting); zero when gross investment and depreciation are equal; positive when gross investment exceeds depreciation
Depreciation
the amount of capital that is used up over the course of a year
I
symbol national income accountants use for private domestic investment spending; subscript g (gross); subscript n (net); Ig = used for GDP
Government purchases (G)
government consumption expenditures and gross investment; expenditures for goods/services the government consumes in providing public services and expenditures for publicly owned capital such as schools and highways; include all gov’t expenditures on final goods and all direct purchases of resources, including labor
GDP Formula
C + Ig + G + X (exports) - M (imports) or C + Ig + G + Xn
Net exports (Xn)
exports (X) - imports (M)
National income
employee compensation (largest portion of Nat’l income); rents, interest, proprietors’ income, corporate profits, taxes on production & import; total of all sources of private income plus gov’t revenue from taxes on production and imports
Corporate profits
corporate income taxes, dividends, undistributed corporate profits (retained earnings)
Taxes on production/imports
general sales taxes, excise taxes, business property taxes, license fees, customs duties; accounts for expenditures diverted to the government
Net foreign factor income
adjusting GDP by taking out the income Americans gain from supplying resources abroad and add in the income that foreigners gain by supplying resources in the US
Consumption of fixed capital
huge depreciation charge against private and publicly owned capital each year; allowance for capital that has been consumed in producing the year’s GDP
Net domestic product (NDP)
= GDP - consumption of fixed capital (depreciation); measures total annual input that the entire economy can consume without impairing its capacity to produce in ensuing years
Personal income (PI)
all income received, whether earned or unearned
Disposable income (DI)
personal income less personal taxes; amount of income households have left over after paying their personal taxes; = C (consumption) + S (saving)
Nominal GDP
GDP based on prices that prevailed when the output was produced; AKA unadjusted GDP
Real GDP
GDP that has been deflated or inflated to reflect changes in the price level is adjusted GDP; nominal GDP divided by price index (in hundredths)
Price Index
measure of the price of a specific collection of goods and services (market basket) in a given year as compared to the price of an identical (or highly similar) collection of goods/services in a reference year; nominal GDP divided by real GDP
