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Definition
| Study of how households and firms make choices, interact in markets, and how to government attempts to influence their choices. |
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| Study of economy as a whole - inflation, unemployment, and economic growth. |
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| Alternating periods of expansion and recession. |
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| TOTAL Production and TOTAL Employment are increasing. |
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| TOTAL Production and TOTAL Employment are decreasing. |
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Term
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| The ability of an economy to produce INCREASING QUANTITIES of GOODS and SERVICES. |
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| Percentage INCREASE in AVERAGE level of prices from one year to another. |
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| Measures total production and income. |
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Term
| GDP is the market value of... |
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Definition
All FINAL goods and services produced INSIDE a country.
Only includes current productions; no used goods. |
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| Bureau of Economic Analysis (BEA) |
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| Values (in dollar terms) rather than quantities (in numerical terms). |
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Definition
One purchased by FINAL USER and not included in the production of any other good or service.
Ex: Personal Computer or a Burger |
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| Intermediate Good or Service |
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Definition
One used as an INPUT into another good or service.
Ex: A tire to a truck |
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Term
| GDP is the SIMULTANEOUS measurement of what two values? |
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Definition
TOTAL Production and TOTAL Income Value of goods sold = Total value of income Ex: Money spent on a product will dissipate into someone's pockets. "EVERY PENNY MUST END UP AS SOMEONE'S INCOME." |
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Term
| Firms sell goods and services to which three groups? |
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Definition
Domestic households Foreign Firms and Households The Government |
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Term
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Definition
| Expenditures BY foreign firms and households ON domestically produced goods and services. |
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Term
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Definition
An organization that produces a good or service.
Most firms produce for profit, but there are also non-profit firms (e.g. universities, churches). |
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Definition
The basic residential unit in which economic production and consumption take place.
A person or group of persons living in the same residence.
Government uses term synonymously with 'family'. |
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Term
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Definition
| Labor, capital, natural resources, and entrepreneurship. |
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Term
| Households supply ______ to firms in exchange for income. |
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Definition
| The factors of production: labor, capital, natural resources, and entrepreneurship. |
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Term
| The four divisions of income. |
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Definition
Wages: firms pay wages to households in exchange for labor. Interest: for the use of capital. Rent: for natural resources such as land. Profit: the income that remains AFTER a firm has paid WAGES, INTERESTS, and RENT. |
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Term
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Definition
| The INCOME that REMAINS after a firm has paid wages to households, interest for capital, and rent for natural resources. |
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Definition
Payments by the government to individuals for which the government does not receive a new good or service in return.
NOT INCLUDED IN GDP; NO EXCHANGE FOR NEW GOODS OR SERVICES. |
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Definition
| Spending on foreign-produced goods and services. |
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Term
| What makes up the financial system? |
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Definition
| Banks and Stock & Bond markets. |
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Term
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Definition
Adding up total expenditures of the three groups firms sell goods and services to: domestic households, foreign firms and households, and the government.
Calculating the total income received by households.
Total production of goods and services of firms. |
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Term
| Household income is spent on... |
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Definition
Goods and Services (Services, Durable, and Non-Durable Goods) Foreign goods and services (imports) Paying government taxes Deposited in checking or savings accounts Buy stocks and bonds |
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Term
| What makes up the financial system? |
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Definition
| Banks and Stock & Bond Markets. |
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Term
| What is the importance of the financial market? |
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Definition
It allows the government and firms to borrow money. Without the ability to borrow funds, firms will have a difficult time expanding and adopting NEW technologies. |
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Term
| What are the four major categories of expenditures? |
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Definition
| Consumption, Investment, Government Purchases, and Net Exports |
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Term
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Definition
Spending by households on goods and services, not including spending on new houses.
Divided into:
SERVICES (health care)
NON-DURABLE GOODS (food, clothes)
DURABLE GOODS (cars, furniture) |
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Definition
Spending by firms on new factories, office buildings, machinery, and additions to inventory.
Spending by households on houses. |
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Term
| The three divisions of investment? |
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Definition
BUSINESS FIXED INVESTMENT - spending by firms on new factories, office buildings, and machinery used to produce goods.
RESIDENTIAL INVESTMENT - spending by households and firms on houses.
CHANGES IN BUSINESS INVENTORIES - goods that are produced but have not yet been sold. |
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Term
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Definition
One of the four components of calculating GDP. The spending by federal, state, and local governments on goods and services. |
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Definition
Exports minus imports. (Money spent on imports goes to consumption, but the values of those imports are compensated for by subtracting it from GDP.) |
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Definition
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Term
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Definition
The market value a firm adds to a product. The price for which a firm sells a good - the intermediate goods = Value Added Total sum of values added = GDP |
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Term
| The two types of productions not included in the calculation of GDP |
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Definition
Household Production Production & Underground Economy Production
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Term
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Definition
| Goods and services people produce for themselves. |
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Term
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Definition
| Buying and selling goods and services that is concealed from the government to avoid taxes or regulations or because the goods and services are illegal. |
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Term
| The underground economy can be referred to as the... |
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Definition
Informal Sector.
As opposed to the formal sector in which output of goods and services is measured. |
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Term
| Shortcomings of GDP as a Measure of Well-Being |
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Definition
1. The value of leisure is not included in GDP. 2. GDP is not adjusted for pollution or other negative effects of production. 3. GDP is not adjusted for crime and other social problems (ex: increases in crime may increase spending in protection, thus increasing GDP). 4. GDP does not equally distribute increases of productions and services. |
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Term
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Definition
The value of final goods and services evaluated at current-year prices.
Calculated by summing the current values of final goods and services. |
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Term
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Definition
The value of final goods and services evaluated at base-year prices.
Calculated by designating a particular year as the base year and then using the prices of goods and services in all other years. |
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Term
Average Price (Year 1) + Average Price (Year 2)
Average Price (Year 2) + Average Price (Year 3)
What kind of method of calculation is this? |
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Definition
| Calculating real GDP with 'CHAINED DOLLARS'. |
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Term
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Definition
| A measure of the average prices of goods and services in the economy. |
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Term
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Definition
A measure of the price level.
Nominal GDP/Real GDP x 100 = |
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Term
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Definition
Gross National Product
Value of final goods are services produced by residents of the U.S., even if production is OUTSIDE U.S. borders. |
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Term
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Definition
Net National Product GNP minus depreciation (run-down machinery, equipment, buildings). |
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Term
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Definition
"Net national product minus sales taxes"
National Income (Total income) < GDP (Total production) because government taxes are subtracted from income. |
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Term
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Definition
"Net national product minus sales taxes"
National Income (Total income) < GDP (Total production) because government taxes are subtracted from income. |
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Term
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Definition
Income received by households.
Subtract corporation earnings not paid to households.
Add transfer payments from government. |
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Term
| Disposable Personal Income |
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Definition
Personal income minus personal tax payments.
Best measure of the income households actually have to spend. |
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Term
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Definition
| GDP calculated as the sum of income payments to households. |
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Term
| Components of Gross Domestic Income |
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Definition
Wages (Largest Component)
Interest Rent Profits Minor things: indirect business taxes, depreciation, and "statistical discrepancy" for measurement problems. |
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Term
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Definition
| Including intermediate good values in GDP, as opposed to including just final good values. |
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