Chapter 19 "GDP: Measuring Total Production and Income

gross domestic income

GDP calculated as the sum of income payments to households

government purchases

spending by federal, state and local governments on goods and services. State and local spending is greater than fed

investment

spending by firms on new factories, office buildings, machinery, and additions to inventories, plus spending by households on new houses. greatest component is business' fixed investment. Also includes spending on research and development

consumption

spending by households on goods and services, not including spending on new houses, largest component of GDP. largest component of consumption is services over durable and non durable goods

chain-weighted prices

starting with the base year, the BEA takes an average of prices in that year and prices in the following year and uses the average to calculate real GDP

inflation rate

the percentage increase in the price level from one year to the next

expansion

the period of the business cycle during which time total production and total employment are increasing

recession

the period of the business cycle during which total production and total employment are decreasing

real GDP

the value of final goods and services evaluated at base-year prices, change in real GDP represents a change in quantity of goods and services produced problem is that over time prices may change relative to each other

nominal GDP

the value of final goods and services evaluated at current-year prices

Gross national product

the value of final goods and services produced by residents of the united states, even if the production takes place outside the US

depreciation

value of worn out machinery, equipment or other fixed capitol. labeled consumption of fixed capitol in NIPA

disposable personal income

= personal income - tax payments

national income

GDP- depreciation

Microeconomics

The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices

Macroeconomics

The study of the economy as a whole, including topics such as inflation, unemployment and economic growth

income equation

Wages + interest + rent + profit (return to entrepreneurs and business owners for bearing risk)

final goods or services

a good or service purchased by a final user

intermediate good or service

a good or service that is an input into another good or service, such as a tire on a truck

GDP deflator

a measure of the price level, calculated by dividing the nominal GDP by real GDP and multiplying by 100. value of GDP deflator will always be 100 in base years

price level

a measurement of the average prices of goods and services in the economy, want to keep this stable

wages

all compensation received by employees, including fringe benefits like health care

business cycle

alternating periods of economic expansion and economic recession

financial system

banks and stock and bond markets, makes it possible for the government and firms to borrow

underground economy

buying and selling of goods and services that is concealed from the government to avoid taxes or regulations or because it's illegal; an informal sector of the economy

GDP per capita

dividing the value of GDP by the country's population, measurement of well-being

net exports

exports minus imports. imports are greater than exports, negative number.

household production

goods and services people produce for themselves

NIPA

national income and product accounts, a stats table that tracks total production and income

transfer payments

payments by the government to households for which the government does not receive a new good or service. Ex. social security, foreign aid

economic growth

the ability of an economy to produce increasing quantities of goods and services

value added

the market value a firm adds to a product, equal to the difference between the price for which a firm sells a good and the price it paid other firms for intermediate goods

Gross domestic product (GDP)

the market value, in dollar terms of all final goods and services (to avoid double counting) produced in a country during a period of time, typically one year. NOT intermediate goods, used goods, transfer payments, leisure, negative externalities household production or the underground economy *equal to the value of all the income in the economy* equation: consumption + interest + government spending + net exports (exports - imports)