Unit I & II vocab Flashcards
Gross domestic product (GDP)
The market value of all final goods and services produced within a country during a specific period.
Intermediate goods
Goods purchased for resale or for use in producing another good or service.
Final market goods and services
Goods and services purchased by their ultimate user.
Expenditure approach to derive GDP
Total the expenditures on goods and services produced during the year
Resource cost-income approach to derive GDP
Sum the income payments to resource suppliers of all things used to produce those goods or services.
Personal consumption
Household spending on consumer goods and services during the current period. Consumption is a flow concept.
Private investment
The flow of private-sector expenditures on durable assets (fixed investments) plus the addition of inventories (inventory investments) during a period. The expenditures enhance our ability to provide consumer benefits in the future.
Depreciation
The estimated amount of physical capital (for example, machines and buildings) that is worn out or used up producing goods during a period.
Inventory investments
Changes in the stock of unsold goods and raw materials held during a period.
Net exports
Exports minus imports
Exports
Good and services produced domestically but sold to foreigners
Imports
Good and services produced by foreigners but purchased by domestic consumers, businesses and governments.
Indirect business taxes
Taxes that increase a business firm’s costs of production and, therefore, the price charged to consumers. Examples are sales, excise, and property taxes.
National income
The total income earned by a country’s nationals (citizens) during a period. It is the sum of employee compensation, self-employment income, rents, interest, and corporate profits.
Gross national product
The total market value of all final goods and services produced by the citizens of a country. It is equal to the GDP minus the net income of foreigners.
Net income of foreigners
The income of foreigners earn by contributing labor and capital resources to the production of goods within the borders of a country minus the income the nationals of the country earn abroad.
Nominal values
Values expressed in current dollars. Often call money values.
Real values
Values that have been adjusted for the effects of inflation.
Consumer price index (CPI)
An indicator of the general level of prices. It attempts to compare the cost of purchasing the market basket bought by a typical consumer during a specific period with the cost of purchasing the same market basket during an earlier period.
Chained consumer price index
A measure of the consumer price index that accounts for changes in the market basket of goods bought on a monthly basis rather than on a lagged basis as done with the traditional CPI. This change reduces the annual inflation rate by 0.2 to 0.3 percentage points.
GDP deflator
A price index that reveals the cost during the current period of purchasing the items included in the GDP relative to the cost during a base year (currently 2012). Unlike the consumer price index (CPI), the GDP deflator also measures the prices of capital goods and other goods and services purchased by businesses and governments.
Inflation
An increase in the general level of prices of goods and services. The purchasing power of the monetary unit, such as the dollar, declines when inflation is present.
Nominal GDP
GDP expressed at current prices. It is often called money GDP.
Real GDP
GDP adjusted for changes in the price level.
Underground economy
Unreported barter and cash transactions that take place outside recorded market channels. Some are otherwise legal activities undertaken to avoid taxes. Others involve illegal activities such as trafficking drugs and prostitution.
Per capita GDP
Income per person. Increases in income per person are vital for the achievement of higher living standards.
Rule of 70
If a variable grows at a rate of X percent per year, 70/X will approximate the number of years required for the variable to double.
Technological advancement
The introduction of new techniques or methods that increase output per unit of input.
Institutions
The legal, regulatory, and social constraints that affect the security of property rights and enforcement of contracts. They exert a major impact on the incentive to engage in productive activities, innovate, and realize gains from trade,
Less-developed countries
Countries with low per capita incomes, low levels of education, widespread illiteracy, and widespread use of production methods that are largely obsolete in high-income countries. They are sometimes referred to as developing countries.
What are the sources of economic growth and high incomes?
Gains from trade
The institutional environment
Entrepreneurship, technology, and the discovery of better ways of doing things
Investment in physical and human capital
What institutions and polices will promote growth?
Legal system
Competitive market
Stable money and prices
Minimal regulation
Trade openness
What legal system promote growth?
Secure property rights, rule of law, and even-handed enforcement of contracts
What competitive markets promote growth?
Freedom of entry into business and occupations
What about stable money and prices promotes growth?
Low and predictable rates of inflation
Which regulations should be avoided to promote growth?
Regulations that restrict entry and interfere with voluntary exchanges.
What should be avoided to promote trade openness and growth?
Tariffs, quotas, and other regulations that restrict residents from trading with people in other countries.
Purchasing power parity (PPP) method
Method in which the relative purchasing power of each currency is determined by comparing the amount of each currency required to purchase a common bundle of goods and services in the domestic market. The information is then used to convert the GDP of each nation to a common monetary unit like the U.S. dollar.
Economic freedom
Method of organizing economic activity characterized by 1) personal choice, 2) voluntary exchange coordinated by markets, 3) freedom to enter and compete in markets, and 4) protection of people and their property from aggression by others.
Quartile
A quarter (25 percent) of a group. The quartiles are often arrayed on the basis of an indicator like income or degree of economic freedom.
Democracy
A form of political organization in which adult citizens are free to participate in the political process (vote, lobby, and choose among candidates), elections are free and open, and majority voting, either directly or by elected representative, decides outcomes.
Four major components of GDP when derived by the expenditure approach
- personal consumption
- gross private investment
- government consumption and gross investment
- net exports
Direct income components of GDP derived by the resource cost-income approach
wages and salaries
self-employment income
rents
interest
corporate profits
Indirect components of GDP derived by the resource cost-income approach
indirect business taxes
depreciation
net income to foreigners
What are the most widely used price indexes?
The GDP deflator
The consumer price index (CPI)
What is the equation for rate of inflation?
(PI2-PI1)/PI1 x 100%
What is the equation for converting nominal GDP to real GDP?
Real GDP2=Nominal GDP2 x GDP deflator 1/GDP deflator 2
What are the three major sources of economic progress?
- gains from trade and expansion in the size of the market
- discover of new technologies and innovated applications
- investment in physical and human capital
