Test 2 Flashcards
GDP
Total dollar value of all final goods and services produced in the economy in a one year period
Current dollars
Nominal GDP, because it uses current prices in that year
Constant Dollars
Real GDP, because real GDP puts prices on each years Q’s, using base year prices
Intermediate goods
Goods that are like a car radio or leather seats. Not included in GDP
Non productive transactions
Are excluded from GDP. There are three…financial transactions involving bonds, second hand sales, and transfer payments
Expenditure Approach
Add up all expenditures on the final goods/services produced
Income Approach
Add up all of the income generated by the production of the goods/services
-Factors of expenditure approach
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Personal Consumption expenditures
All expenditures by household of all goods/services
Government Purchases of goods/services
Includes expenditures of all levels of government on goods/services
Gross Private Domestic investment
When goods are produced tho year but not consumed till later
Net exports
Dollar value of the goods we export minus dollar value of goods we import
C+I+G+(X-M)
Formula
Economic Growth
An increase in real per capita GDP
“Catch-up effect”
Underdeveloped countries have a higher growth rate than developed industrial nations
New Growth Theory
Focuses on technology, research and innovation
Property Rights
Encourages economic growth
“Industrial Policy”
Government should support industries and technology of the future using taxes + subsidies
-Increase in technology creates more jobs in the long run
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Real balance effect
As price level rises, purchasing power of money declines
Interest Rate Effect
As price level rises, interest rates tend to rise
The open economy effect
As price level in U.S. rises, U.S. goods are more expensive then foreign goods
AD factors to shift curve
Households become more optimistic and spend more. (increases) Businesses become more pessimistic and spend less on tools (decreases). Fed. gov. increases spending on real goods (increases)
-Change in input prices causes a SRAS shift
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