Gross Domestic Product (GDP)
the market value of all the final goods and services produced within a country in a given time period (one year)
market value
prices in which items are traded in markets (value= market price x quantity)
market prices
the price of each item
final good or service
a good or service that is produced for its final user and not as a component of another good service
intermediate good or service
a good or service that is used as a component of a final good or service
the same good can be either intermediate or final depending on how it is ____
used
the value of goods and services for their own use is an example of…
exclusions in GDP
market value of homes is equal to…
the rental value
the production of goods and services outside of the the US is an example of…
exclusions in GDP
given time periods of GDP
quarterly GDP (3 months) or annually GDP (12 months)
What GDP does the Federal Reserve use?
quarterly GDP (short term)
What GDP do economists use?
annual GDP (longterm)
four groups that buy the final goods and services
households, firms, governments (local & federal), rest of world
consumption expenditure
household
investments
firms
government expenditures goods and services
governments
net exports and goods
rest of world
nondurable goods + durable goods + rental value + services =?
consumption expenditure
nondurable goods
pizza, oranges, food, anything that can go bad, etc
durable goods
laptop, TV, etc.
services
rock concert, haircut, Xbox subscription, etc.
the purchase of new capital goods and additions in inventory
investment (included in GDP)
the purchase of stocks and bonds are…
NOT equal to stocks and bonds
federal (US Defense Department) + state (State Department) +local (Town Hall) =
government expenditures goods and services
Items that firms in the US produce and sell to the rest of the world
Exports of good and services
Items that households, firms, and governments in the US buy from the rest of the world
Imports of goods and services
value of exports goods and services - value of imports goods and services=?
net export
if exports ______ imports, then the net exports are positive and US produces goods and services ________
exceed;increase
if imports ______ exports, then the net exports are negative and US produces goods and services _________
exceed;decrease
exports > imports =
positive net exports and increase in GAS (goods and services)
imports > exports =
negative net exports and decrease in GAS (goods and services)
C+I+G+NX=
total expenditure
labor earns….
wages
capital earns…
interest
land earns…
rent
entrepreneurship earns…
profit
undistributed profit
combination of interest and profits that firms retain and do not pay to households
the expenditure approach
the measurement of the GDP using data on consumption expenditure, investment, government expenditure on GAS, and net exports
the income approach
Measures GDP by summing the incomes that firms pay households for the factors of production they hire
net product
what the income approach measures
deprecation
the decrease in the value of capital that results from its use and from obsolescence
Disposable personal income
the income received by households minus personal income taxes paid
the value of the final goods and services produced in a given year expressed in the prices of the base year
Real GDP
the value of the final goods and services produced in a given year expressed in the prices of that same year (economy’s output in current dollars)
Nominal GDP
factor services
factor of production (e.g: labor)
transfer payments
payments that the government makes to individuals without expecting GAS in return (e.g: social security, scholarships grants)
used/second hand products are…
not included in the GDP
purely financial transactions (e.g: transfer payments) are…
not included in the GDP
the sale of stocks and bonds are…
not included in the GDP (no production of GAS)
services provided for no money (childcare provided by stay-at-home parent) are…
not included in the GDP
intermediate GAS is…
not included in the GDP
foreign produced GAS are…
not included in the GDP
rent is a _______ for a service and is included in the GDP
payment
the value of inventories are…
not included in the GDP
aggregate output
the sum of all goods produced over a certain period of time
aggregate spending
the sum of all the expenditures undertaken in the economy by the factors during a specific time period
GDP does not equal…
prosperity or higher standards of living
GDP measures ________________, but does not include ______________________ that may contribute to happiness and quality of life
aggregate output;nonmarket transactions
standard of living
the level of consumption of goods and services that people enjoy, on average
real GDP/population =?
real GDP per person
potential GDP
the value of real GDP when all the economy’s factors of production (land, labor, capital, entrepreneurial ability) are fully employed
when the factors of production are ________, real GDP is below potential GDP
unemployed
when the factors of production are _____________, real GDP exceeds potential GDP
over-employed
a periodic but irregular up-and-down movement of total production and other measures of economic activity
business cycle
each business cycle has an _________ and _________
expansion;recession
each business cycle has two turning points: ____ and ______
peak;trough
a period during which real GDP increases
expansion
a period during which real GDP decreases for at least two successive quarters (with a negative growth rate)
recession
a period during which real GDP decreases for at least two successive quarters (with a negative growth rate)
recession
people who are currently holding a job, either part-time or full-time
employed
people who are not currently employed but are actively looking for work
unemployed
employed + unemployed =
labor force
labor force/population 16 years and older x 100 =?
labor force participation rate
prisoners, military personnel, discouraged workers, marginally attached workers, or people in mental institutions are…
not counted in the labor force participation rate
number of unemployed workers/labor force x 100 =?
unemployment rate
an economy’s performance can be measured by different indicators such as the __________ rate
unemployment
non working people who are capable of working but have given up looking for a job due to the state of the job market
discouraged workers
those who would like to be employed and have looked for a job in the recent past but are not currently looking for work are…
marginally attached workers
part-timers because they cannot find full-time jobs
underemployed workers (still employed)
unemployment due to the time workers spend in job search
frictional unemplyment
new graduates looking for a job that is the best fit for them is an example of __________ unemployment
frictional
skilled people looking for a new job opportunity is an example of __________ unemployment
frictional
when there are more people seeking jobs in a labor market than there are jobs available at the current wage rate
structural unemployment
when workers’ skills are obsolete or no longer needed
structural unemployment
workers who are replaced by a robot is an example of __________ unemployment
structural
a job that moved to a lower wage area is an example of __________ unemployment
structural
unemployment that follows the business cycle and occurs during recessions, but the jobs usually return after the economy recovers
cyclical unemployment
when aggregate demand declines, or consumers are buying less and people are getting laid off are an example of…
cyclical unemployment
frictional unemployment + structural unemployment =?
natural rate of unemployment
natural rate of unemployment + cyclical unemployment =
actual rate of unemployment
a measure of the average change over time in the prices paid by consumers for a FIXED “market basket” of goods and services
consumer price index (CPI)
consumption goods
market basket
a way to evaluate the purchasing power of an average American family is…
consumer price index (CPI)
an overall decrease in prices that strengthens the purchasing power of a given income
deflation
an overall increase in prices which erodes the purchasing power of a given income
inflation
when the CPI rises, _________ is occuring
inflation
when the CPI falls, _________ is occuring
deflation
market basket in current year/market basket in base year x 100 =?
consumer price index (CPI)
new CPI - old CPI/ old CPI x 100 =?
inflation rate
the term economists use when referring to variables that have not been adjusted for inflation
nominal
the amount of money one earns in the form of wages or salary is…
nominal income
the stated interest rate is the…
nominal interest rate
the term used to describe variable that HAVE been adjusted for inflation
real
the purchasing power of a given wage or salary is…
real income
the value of an economy’s output in inflation-adjusted dollars
real GDP
the inflation-adjusted cost of borrowed money is…
real interest rate
nominal value/price index/ 100 =?
real value
a slowdown in the rate of increase in the consumer price index (CPI)
disinflation
beneficiaries of unanticipated inflation are anyone ______ money at a fixed amount (e.g: borrowers)
payers
losers of unanticipated inflation are anyone _________ money at a fixed amount (e.g: lenders)
receiving
people with variable interest rates are _________ from unanticipated inflation
protected
people with fixed interest rates are ___________ from unanticipated inflation
unprotected
the condition that exists when expected inflation is equal to actual inflation
price stability
pl x y =?
nominal GDP
an average of the current prices of all the goods and services included in GDP expressed as a percentage of base-year prices
GDP deflator (price index)
real GDP x aggregate PL/100 =?
nominal GDP
nominal GDP/ aggregate PL/100 =?
real GDP
