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ECON CH 6 Flashcards

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1
Q

GDP measures (3)

A
  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
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2
Q

GDP measures (3)

A
  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
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3
Q

why does income(Y)=expenditure (AE)

A

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

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4
Q

GDP is a method used to measure (2)

A
  1. national output

2. national income

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5
Q

GDP definition

A

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)

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6
Q

GDP only includes what

A

the final good of the production

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

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7
Q

final goods and services refers to

A

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

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8
Q

intermediate goods are

A

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

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9
Q

GDP does not include what (2)

A
  1. used goods
    EX: used car
  2. paper transactions
    EX: buying shares of stock
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10
Q

GDP measures the

A

output produced by factors of production located within the domestic economy

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11
Q

GNP

A

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

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12
Q

GDP=

A

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

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

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13
Q

the expenditure approach

A

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

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14
Q

the expenditure approach

A

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

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15
Q

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

A
  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
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16
Q

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

A
  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
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17
Q

unsold output goes into

A

inventory investment, whether it was intentional or not

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18
Q

change in inventories=

A

GDP-total sales

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19
Q

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

A

Consumption ( C ) and GDP will rise by $200

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20
Q

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

A

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

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21
Q

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

A

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

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22
Q

%changeY

A

growth rate

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23
Q

%changeY

A

growth rate

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24
Q

why does income(Y)=expenditure (AE)

A

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

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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

Econ 104 (15 decks)

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