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Flashcards in ECON CH 6 Deck (67):
1

GDP measures (3)

1. total production (Y) of G&S in the economy
2. aggregate income (Y) of everyone in the economy
3. aggregate expenditure (AE) on G&S produced in the economy

2

GDP measures (3)

1. total production (Y) of G&S in the economy
2. aggregate income (Y) of everyone in the economy
3. aggregate expenditure (AE) on G&S produced in the economy

3

why does income(Y)=expenditure (AE)

because every dollar of expenditure by a buyer is a dollar in revenue for the seller

4

GDP is a method used to measure (2)

1. national output
2. national income

5

GDP definition

is the aggregated market value of all final goods and services produced by all factors of production located within a country in the current year (or quarter)

6

GDP only includes what

the final good of the production
EX: steel is not included in GDP b/c its included in the car (as the final good)

7

final goods and services refers to

goods and services produced for final use (or consumption) only
EX: tires you buy to replace a flat tire

8

intermediate goods are

goods produced by one firm for use in further processing by another firm
EX: tires mounted on the wheels of a new car before the car is sold

9

GDP does not include what (2)

1. used goods
EX: used car
2. paper transactions
EX: buying shares of stock

10

GDP measures the

output produced by factors of production located within the domestic economy

11

GNP

measures the output of all U.S. owned factors of production, regardless of where the output is produced
EX: chevy produced in factory in mexico would be counted in the US GNP b/c is owned by a US company

12

GDP=

Y=AE=C+I+G+(EXP-IMP)

C=70%
I=17%
G=20%
NX= -5%

13

the expenditure approach

a method of computing GDP that measures the total amount spent (AE) on domestically produced goods and services during a given period

14

the expenditure approach

a method of computing GDP that measures the total amount spent (AE) on domestically produced goods and services

15

the expenditure approach (GDP=AE) which is the sum of what 4 components

1. personal consumption expenditures ( C )
-durable goods, nondurable goods, services
2. gross private domestic investment (I)
-nonresidential investment, residential investment, change in inventories
3. government expenditures (G)
-federal, state, and local
4. net exports (NX=EX-IM)
-exports and imports

16

the expenditure approach (GDP=AE) which is the sum of what 4 components

1. personal consumption expenditures ( C )
-durable goods, nondurable goods, services
2. gross private domestic investment (I)
-nonresidential investment, residential investment, change in inventories
3. government expenditures (G)
-federal, state, and local
4. net exports (NX=EX-IM)
-exports and imports

17

unsold output goes into

inventory investment, whether it was intentional or not

18

change in inventories=

GDP-total sales

19

debbie spends $200 to buy her husband dinner at the finest restaurant in Boston

Consumption ( C ) and GDP will rise by $200

20

Sabrina spends $1800 on a new laptop in her publishing business. the laptop was build in china

investment (I) rises by 1800, net exports fall by 1800, and GDP is unchanged

21

Jane spends $1200 on a computer to use in her editing business. she got last years model on sale for a great price from a local manufacture

current GDP and investment do not change, b/c the computer was built last year

22

%changeY

growth rate

23

%changeY

growth rate

24

why does income(Y)=expenditure (AE)

because every dollar of expenditure by a buyer is a dollar in revenue for the seller

25

GDP is a method used to measure (2)

1. national output
2. national income

26

GDP definition

is the aggregated market value of all final goods and services produced by all factors of production located within a country in the current year (or quarter)

27

GDP only includes what

the final good of the production
EX: steel is not included in GDP b/c its included in the car (as the final good)

28

final goods and services refers to

goods and services produced for final use (or consumption) only
EX: tires you buy to replace a flat tire

29

intermediate goods are

goods produced by one firm for use in further processing by another firm
EX: tires mounted on the wheels of a new car before the car is sold

30

GDP does not include what (2)

1. used goods
EX: used car
2. paper transactions
EX: buying shares of stock

31

GDP measures the

output produced by factors of production located within the domestic economy

32

GNP

measures the output of all U.S. owned factors of production, regardless of where the output is produced
EX: chevy produced in factory in mexico would be counted in the US GNP b/c is owned by a US company

33

GDP=

Y=AE=C+I+G+(EXP-IMP)

C=70%
I=17%
G=20%
NX= -5%

34

why do we care about GDP (2)

1. most important macro variable (statistic)
2. best recipe for happiness macro has to offer
-large GDP enables people to enjoy better schools, cleaner environment, better health care, and longer life
-many indicators of the quality of life are positively correlated with GDP

35

the expenditure approach

a method of computing GDP that measures the total amount spent (AE) on domestically produced goods and services

36

Expenditure (AE)=

Aggregate income (Y)=Aggregate output (Y)

37

the expenditure approach (GDP=AE) which is the sum of what 4 components

1. personal consumption expenditures ( C )
-durable goods, nondurable goods, services
2. gross private domestic investment (I)
-nonresidential investment, residential investment, change in inventories
3. government expenditures (G)
-federal, state, and local
4. net exports (NX=EX-IM)
-exports and imports

38

unsold output goes into

inventory investment, whether it was intentional or not

39

change in inventories=

GDP-total sales

40

debbie spends $200 to buy her husband dinner at the finest restaurant in Boston

Consumption ( C ) and GDP will rise by $200

41

Sabrina spends $1800 on a new laptop in her publishing business. the laptop was build in china

investment (I) rises by 1800, net exports fall by 1800, and GDP is unchanged

42

Jane spends $1200 on a computer to use in her editing business. she got last years model on sale for a great price from a local manufacture

current GDP and investment do not change, b/c the computer was built last year

43

general motors builds $500 mill worth of cars, but consumers only buy $470 mill of them

consumption rises by 470 mill, inventory investment rises by 30 mill, and GDP rises by 500 mill

44

base year

the year chosen for the weights in a fixed-weight procedure

45

nominal GDP

values output using current year prices (current dollars or nominal dollars)
-not corrected for inflation
-year=(PxQ)+(PxQ)

46

real GDP

values output using the prices of the base year
-is corrected for inflation
-base year= (base PxQ)+(base PxQ)

47

base year (fixed weight) procedure

use the prices of the same year (base year) as weights when determining the value of real GDP
-a weight is the importance attached to an item within a group of items

48

chain weight procedure

uses prices (weights) of two adjacent years

49

%change NGDP

NGDP big/little= NGDP big- NGDP little
divided by NGDP little x100

50

economics are concerned with how the overall price level ℗ changes b/c

they want to keep inflation under control

51

calculate inflation

%changeP big/little= P big- P little divided by P little x100

52

overall price level ℗ is calculated by using two methods

1. the GDP deflator
2. the consumer price index

53

the GDP deflator in a year

Pyear= GDP delf year= NGDP year/RGDP year x100

54

GDP / Capita = (3)

1. economic well being
2. national welfare
3. standard of living

55

GDP does not include (6)

1. the quality of the environment
2. leisure time
3. non-market activity
4. an equitable distribution of income
5. underground economy (shadow economy)
6. many, many other "thinks" that make our lives worth living

56

why do we care about GDP (2)

1. most important macro variable (statistic)
2. best recipe for happiness macro has to offer
-large GDP enables people to enjoy better schools, cleaner environment, better health care, and longer life
-many indicators of the quality of life are positively correlated with GDP

57

nonresidential investment

expenditures by firms for machines, tools, plants, and so on

58

residential investment

expenditures by households and firms on new houses and apartment buildings

59

change in business inventories

the amount by which firms` inventories change during a period. inventories are the goods that firms produce now but intend to sell later
-(production-sales)

60

depreciation

the amount by which an assets value falls in a given period

61

net investment

gross investment minus depreciation

62

gross investment

the total value of all newly produced capital goods produced in a given period

63

national income

the total income earned by the factors of production owned by a country`s citizen

64

dispositional personal income or after-tax income

personal income minus personal income taxes. the amount that households have to spend or save

65

current dollars

the current prices we pay for goods and services
-negatively related with the central producer

66

base year

the year chosen for the weights in a fixed-weight procedure

67

5 steps to calculate CPI and inflation rate

1. Q in the basket
2. P for GS in the basket
3. calculate COD
4. CPI year= COB year/ COB base x100
5. inflation rate= %change overall price level