Ec10b
Home production
goods and services that are produced by a household and are not exchanged in a market
imports
goods produced abroad and sold domestically -imports are already counted as a part of consumption expenditures, investment expenditures, and govt expenditures so we will need to account for overlap
Third factor of production: land
more in past. now value of land and natural resources can be included in the physical capital stock
who receives labor income and who receives capital income?
most ppl in economy receive both - a 50-year old wiht a job, a house, and a retirement savings account will receive labor income from their job and capital income from their house (implicit value of having a roof over your head) and capital income from their retirement savings account (dividends)
the 3 parts of National Income Accounts
Production = Expenditure = Income
more accurate way to compare standards of living of different people across different populations/countries
Purchasing Power Parity
aggregate production function
describes the relationship between the aggregate GDP of a nation and its factors of production -useful for determining why productivity varies across countries
Although GDP per capita ▼ does not account accounts for income distribution, statistics show it ▼ is not is a good indicator of overall life satisfaction.
does not, is
market production
dollar value of goods and services produced by factors of production inside the borders of a country
market income
dollar value of total income of factors of production
market expenditure
dollar value on spending on goods and services
Externalities
economic side effects or by-products that affect an uninvolved third party; can be negative or positive
Production of a good even if it isn't sold to a customer
still counts towards GDP because produced
Does GDP buy happiness?
strong predictor of it
Macroeconomics
the study of economy-wide phenomena, including inflation, unemployment, and economic growth
national income and products account
the system that the U.S. government uses
real GDP
GDP which uses market prices from a specific base year to express the value of production in the economy
GDP per worker
GDP/number of people in employment -gives better picture of how much each worker produces on average by excluding those who don't work
GDP
Gross Domestic Product- the total market value of all final goods and services produced in an economy during a given period of time
exponential growth
Growth pattern grows at a constant rate
When do we use GDP per capita vs GDP per worker
-GDP per worker is informative when we would like to understand why some economies are more productive than others b/c it focuses directly on differences in GDP relative to the number of workers in employment -GDP per capita is useful in measuring the differences in the standards of living across countries (natural first step because the conditions of the whole population including the children and elderly) (but its missing a lot)
What does GDP leave out?
-Physical capital depreciation -Home production -Underground economy -Externalities
Five categories of purchases within Expenditure
1) consumption 2) investment 3) government expenditure 4) exports 5) imports
GDP vs GNP
1. Gross Domestic Product: The total value of goods produced and services provided in a country during one year. (within the borders) - production of a country's residents and the production of visitors (if us workers spends 2 months working in singapore, her production is counted in singapore GDP or if Honda, Japanese company opens a plant in the US then its in US GDP) 2. Gross National Product: The total value of goods produced and services provided by a country during one year, equal to the gross domestic product plus the net income from foreign investments. (us worker works in summer at a Uni then GNP is included in US and exluded from SIngapore GNP and US GNP would exlude Honda plant in Alabama)
Making generalizations about the welfare of a country's citizens based on its income per capita is problematic because ____________. A. a high per capita income could be poorly distributed. B. a low per capita income could be poorly distributed. C. non-monetary based sources of happiness are valued. D. goods and services are not valued.
A Even though income per capita is a fairly good predictor of average life satisfaction in a country, we cannot capture the diverse dimensions of well-being and the standards of living of an entire population by looking at a single number; the measurement of well-being goes beyond goods and services. In addition, a high GDP per capita is only an average, and if poorly distributed, would not be indicative of the population.
The most important determinant of cross-country differences in income (or GDP) per worker appears to be ____________. A. differences in technology and the efficiency of production. B. total efficiency units of labor and differences in physical capital. C. physical capital and differences in technology. D. the efficiency of production and differences in physical capital.
A Though the total efficiency units of labor and physical capital stock matter a great deal for GDP, the most important determinant of cross-country differences in income (or GDP) per worker appears to be differences in technology and the efficiency of production. OK
PPP (Purchasing Power Parity)
A statistical tool that estimates the buying power of income across different countries by using prices in the United States as a benchmark
Expenditure
An amount of money spent. -Using the expenditure method of calculating GDP, inventory is coded as having been "purchased" by a firm. When both households' expenditures and firms' expenditures are included to accumulate inventories, total expenditures are the same as under the production-based method. -what if goods arent sold? they're still owned by a firm/business
The main reason income per capita varies across countries is due to ____________. A. the number of hours worked. B. the productivity of workers. C. exchange rates. D. the number of people employed.
B
In a closed economy without government spending, all income must be ____________. A. invested; therefore, GDP is equal to the sum of aggregate saving and investment. B. consumed or saved; therefore, GDP is equal to the sum of aggregate consumption and investment. C. consumed; therefore, GDP is equal to the sum of aggregate consumption and investment. D. consumed or saved; therefore, GDP is equal to the sum of aggregate saving and investment.
B Assuming Y=C+I, GDP is equal to the sum of aggregate consumption and investment. This implies that investment comes directly from aggregate saving, because in a closed economy without government spending, all income will be either consumed or saved. Therefore, GDP is also equal to aggregate consumption plus aggregate saving, or Y=C+S.
Given that saving can be thought of as future consumption, which of the following would not increase the saving rate? A. Expected college expenses B. Expected growth in personal income C. An expected increase in interest rates D. An expected increase in taxes
B Expected increases in interest and tax rates, as well as expected large future expenses, typically encourage more saving. Households that expect rapid income growth in the future may have less reason to save to finance future consumption.
Which of the following would be true in a closed economy with a 20 percent saving rate? A. The net export rate would be 20 percent. B. The government expenditure rate would be less than 80 percent. C. The investment rate would be 80 percent. D. The consumption rate would be greater than 80 percent.
B In a closed economy, the saving rate, saving divided by GDP, is equivalent to the investment rate, investment divided by GDP. Therefore, consumption and government spending account for the remaining 80 percent. In reality, consumption is roughly two-thirds of GDP; government spending would be considerably less than 80 percent.
When technology improves, holding all else constant, an economy can produce ___________. A. more output but at a higher cost, and GDP will remain constant. B. more output with the same number of inputs, and GDP will increase. C. as much output as it wants as long as its human capital increases at the same time. D. This cannot be determined, as the amount of output produced depends more on having a large physical capital stock.
B Technology refers to a set of devices and practices that determine how efficiently an economy uses its labor and capital. A better technology means that the economy can generate more output from the same set of inputs, and thus increases its productivity for given total efficiency units of labor and capital. When technology improves (that is, when the economy uses better technology), the relationship between GDP and the physical capital stock shifts up. Therefore, for every level of the efficiency units of labor, a better technology implies that the economy will produce more GDP.
Which of the following would not be counted in a nation's gross domestic product (GDP)? A. The inventoried computers that were produced in the current year but not sold B. The hard drive inside your computer C. Computers produced within the nation but purchased by foreigners D. Computers produced within the nation and purchased by its citizens
B The definition of GDP includes the word final, which signifies that the value of interest is that of the end product in a chain of production. Components that are put together to make a final product do not get counted separately, because that would imply double counting. Thus, the hard drive inside your computer would not be counted toward GDP as it is a component of the computer itself. Next question
Total efficiency units of labor in an economy can be increased by ____________. A. decreasing the number of workers. B. increasing workers' skills through training. C. exporting more physical capital. D. reducing physical capital.
B Total efficiency units of labor
Making generalizations about the welfare of a country's citizens based on its income per capita is problematic because ____________. A. a low per capita income could be poorly distributed. B. non-monetary based sources of happiness are valued. C. a high per capita income could be poorly distributed. D. goods and services are not valued.
C
The underground economy includes all of the following except ____________. A. markets in illegal professions. B. self-employed income not reported to the IRS. C. foreign workers paid in cash. D. agricultural production.
D The underground economy—transactions that are intentionally hidden from government statisticians—represents another hole in GDP accounts. This includes self-employed income not reported to the IRS, foreign workers paid in cash, and markets in illegal professions. Some countries, such as Ireland, Italy, and the United Kingdom, have recently started to include underground economic activity, including illicit drug purchases and prostitution, in their GDP calculations.
All of the following statements concerning technological change are true except ____________. A. innovations improve our productive capacity by a constant proportional amount. B. new innovations and technologies build on the existing knowledge stock. C. improvements in technology take place in constant increments. D. improvements in technology take place at an approximately constant rate.
C Technological change is exponential. This means that improvements in technology take place at an approximately constant rate, rather than by constant increments. Inventors of new innovations and technologies build on the knowledge stock resulting from past innovations. The exponential nature of technological knowledge ensures that innovations improve our productive capacity in GDP, not by a constant amount, but by a constant proportional amount—that is, by a constant percentage. Next question
Given the aggregate production function, we can be certain GDP will increase if ____________. A. the physical capital stock of the country decreases, the index of technology remains constant, and the efficiency units of labor increase. B. the index of technology and efficiency units of labor increase and the physical capital stock of the country decreases. C. the index of technology increases and the efficiency units of labor and physical capital stock of the country remain constant. D. the efficiency units of labor increase while the index of technology and physical capital stock of the nation decrease.
C The aggregate production function is represented as Y=A×F(K, H), where Y stands for GDP, K is the physical capital stock of the nation, H is the efficiency units of labor that the economy uses in production, and A is an index of technology. All of the factors of the aggregate production function have a positive correlation to GDP. Thus, you can be certain of an increase in GDP when the index of technology increases and the efficiency units of labor and physical capital stock of the country remain constant.
An aggregate production function is used to ____________. A. study the relationship between the output of a single firm and the inputs that it uses. B. determine why some workers are more productive than others. C. demonstrate how the factors of production are combined to produce GDP. D. measure the differences in GDP per capita across countries.
C The aggregate production function links the GDP of a nation to its total efficiency units of labor, physical capital stock, technology, and efficiency of production. It is useful for understanding not only how GDP is determined but also why productivity varies across countries.
All of the following would be excluded from GDP except ____________. A. health care assistance that Mary gives to her elderly father after work. B. money from illegal drug cartels. C. the gardening Jack does on the weekend to improve his home. D. a home-based business that grows spices.
D As long as it is a legitimate business that does not hide income from the IRS, a home-based business is counted when calculating GDP.
When comparing GDP to GNP, ____________. A. very few countries will show close measurements for both. B. a closed economy would have a larger GNP. C. GDP is excluded from calculations of GNP. D. a country with more foreign assets than domestic assets would have a larger GNP.
D Gross national product (GNP) is the market value of production generated by the factors of production—both capital and labor—possessed or owned by the residents of a particular nation. For most countries, GNP and GDP are nearly the same. Income from foreign assets is counted in GNP, but excluded from GDP.
Which of the following can generate sustained growth? A. Raising the efficiency units of labor B. Accumulating physical capital C. Increasing the number of workers in the economy D. Advancing the technological knowledge used in production
D Physical capital accumulation by itself cannot generate sustained growth due to the diminishing marginal product of physical capital. Neither raising the efficiency units of labor or increasing the number of workers in the economy can generate sustained growth due to the diminishing marginal product of labor. Technology—particularly, advancement in the technical knowledge used in production—is necessary in order to achieve sustained growth.
All of the following would encourage the more efficient allocation of resources except ____________. A. decreasing private-sector monopolies. B. limiting regulation barriers. C. allowing more trade based on comparative advantage. D. increasing natural monopolies
D Removing monopolies and entry barriers that prevent the efficient allocation of resources is one important way of improving efficiency of production and increasing GDP. Monopolies, even ones with strong economies of scale, are barriers against the entry of new companies and often discourage investment and slow down technological progress.
Is GDP/worker or GDP/capita higher
GDP per worker is higher for every country because the denominator is always smaller
In deriving GDP using expenditure-based national income accounts, transfer payments are excluded. This is because ____________. A. they are already included as part of export spending. B. they can only be used for government spending. C. they are not spent in the economy. D. they are already included as part of consumption spending.
D Transfer payments are omitted when deriving GDP using expenditure-based national income accounts because they represent payments to other agents in the economy who will use those payments to buy goods and services. To avoid double counting, these government payments to other agents are not counted as government expenditures on goods and services. Next question
Zales in Clearwater, Florida, purchased 12 Rado watches for $450 each and sold 9 of them for $650 each. Zales' value-added contribution to GDP is $
Each firm's value-added contribution to GDP is equivalent to the firm's sales minus its purchases of intermediate products from other firms. There is no revenue from unsold products. In this instance, Zale's value-added contribution to GDP is Value added = Sales revenue−Purchases of intermediate products from other firms Value added = (9 watches×$650)−($12 watches×$450) = $450.
Connections between households and firms for example: Boeing
Firms supply goods and services, like airplanes. Households demand goods and services, like air travel Households supply physical capital and labor -> production represents the goods and services that are produced by firms. These goods and services are ultimately sold to households -> expenditure represents the payments for goods and services. These payments are made by households to firms ->income represents the payments that are made from the firms to households to compensate the households for their physical capital and labor. These payments include things like wages, salaries, interest, and dividends -> factors of production represent the productive resources that are owned by households and used by firms in the production process
GDP per capita
GDP divided by population -also income per capita Uses exchange rates
What is used to quantify the differences in standards of living?
GDP per capita
Income per capita
Income per person in a population. Per capita income is often used to measure a country's standard of living.
Income (or GDP) per worker is ▼ than income per capita due to differences in what fraction of the population takes part in ▼ consumption production .
Income per worker is higher than income per capita due to differences in the fraction of the population that takes part in production.
The distribution of GDP between different factions within an economy most closely relates to the ▼ (income, expenditure) method of aggregate accounting. The fact that the value of GDP remains equal regardless of whether GDP is measured by what people are earning or what they are producing is referred to as an ▼ (equilibrium identity).
Income, identity Two variables are related by an identity when the two variables are defined in a way that makes them mathematically identical. This identity Production = Expenditure = Income is the foundation on which most macroeconomic analysis is built.
The depreciation of capital equipment ▼ is is not measured by most governments on their national accounts. That depreciation amount ▼ is is not subtracted from GDP. Depreciation of human capital ▼ is is not subtracted from GDP.
Is, isn't, isn't Most governments do try to measure depreciation in their national accounts even though they do not subtract depreciation when calculating GDP. Changes in health or human capital due to job hazards are also left out of GDP calculations.
Second major factor of production: Physical capital
K when an economy has more physical capital, its workers can work with more and better equipment and structures, thus the economy will produce more GDP
Technology improvements
Knowledge and efficiency of production
The salary paid to a financial advisor would be considered ... income. On a national level, the ... of labor income and capital income is equivalent to aggregate expenditure.
Labor income is any form of payment that compensates people for their work. Capital income is any form of payment that derives from owning physical or financial capital. The two together comprise income-based national accounts equivalent to aggregate production and aggregate expenditure.
The salary paid to a financial advisor would be considered ▼ labor capital income. On a national level, the ▼ sum difference of labor income and capital income is equivalent to aggregate expenditure.
Labor income is any form of payment that compensates people for their work. Capital income is any form of payment that derives from owning physical or financial capital. The two together comprise income-based national accounts equivalent to aggregate production and aggregate expenditure. (labor,sum)
The GDP accounts give an economy ▼ credit no credit for producing leisure. When one thinks about GDP comparisons across countries, one must remember that different countries work at ▼ the same different levels of intensity.
Most people would agree that leisure is a key ingredient in human well-being. However, the GDP accounts give an economy no credit for producing leisure. When one thinks about GDP comparisons across countries, one must remember that different countries work at different levels of intensity.
Negative externalities occur when an economic activity has a spillover ▼ cost/benefit that ▼ does/doesn't affect those directly engaged in the activity. Positive externalities occur when an economic activity has a spillover ▼ cost/benefit that ▼ does/doesn't affect those directly engaged in the activity.
Negative externalities occur when an economic activity has a spillover cost that does not affect those directly engaged in the activity. Positive externalities occur when an economic activity has a spillover benefit that does not affect those directly engaged in the activity.
One of the biggest ▼ problems with benefits of GDP and GDP per capita is the ▼ plethora lack of detailed information about how economic output is divided up among households.
One of the biggest problems with GDP and GDP per capita is the lack of detailed information about how economic output is divided up among households. For example, the United States and Norway have very similar levels of per capita GDP; however, the United States has more income inequality.
When comparing GDP from 2013 to 2015, ▼ real nominal GDP for 2015 would be calculated using 2013's price level. In this instance, 2013 is the ▼ current base year, and its GDP ▼ would not would be adjusted.
Real GDP is the total value of production (final goods and services) calculated using market prices from a specific base year to determine the value of each unit that is produced. The base year is not adjusted, as that is the price level the current year is being adjusted to. real, base, would not
Solow Growth Model
Resources, technology, and institutions are the sources of economic growth.
Households () factors of production, and firms utilize them to () goods and services.
Supply, produce The circular flow diagram provides a visual way of remembering the relationships among the four equivalent systems that measure GDP. Firms produce goods and services (production), which households purchase (expenditure). Firms pay households for physical capital and labor (income), which firms use as factors of production (factors). The national income accounting system is set up so that all four sets of flows are equal in market value.
Holding all other factors constant, the Law of Diminishing Marginal Product states that ____________. A. the marginal contribution of labor increases as the quantity of capital used in production increases. B. the marginal contribution of labor decreases as the quantity of labor used in production increases. C. the marginal contribution of labor increases as the quantity of labor used in production increases. D. the aggregate contribution of labor increases as the quantity of capital used in production increases.
The Law of Diminishing Marginal Product states that the marginal contribution of a factor of production to GDP diminishes when we increase the quantity used of that factor of production (holding all other factors of production constant). As such, the marginal contribution of labor decreases as the quantity of labor used in production increases (holding all other factors constant). Next question
Purchasing Power Parity (PPP)
The amount of money needed in one country to purchase the same goods and services in another country for comparing income across countries -Purchasing power parity provides a better way to convert GDP in domestic currencies into common units because it reflects the differences in the cost of living between countries.
Absolute Convergence
The idea that developing countries, regardless of their particular characteristics, will eventually catch up with the developed countries and match them in per capita output -implies that eventually all economies will have the same income -doesn't work if you're too unstable to take advantage of low GDP
exchange rate
The measure of how much one currency is worth in relation to another. -fails to account for the fact that prices range across countries, so we will use PPP
Labor (FACTOR OF PRODUCTION)
The physical and mental effort that people contribute to the production of goods and services (its a poor indicator of how much economy can produce so we use total efficiency units of labor)
Production
The process of creating goods and services -market price of Ford in Fordica: $30,000 and they produce 5 million cars/year -> 5mil cars x $30,000/car = $150 billion per year
A representative bundle of commodities costs $100 in the United States and 75 pounds in England. The purchasing power parity (PPP) conversion factor between U.S. dollars and the British pound is enter your response here.
The purchasing power parity (PPP) conversion factor constructs the cost of a representative bundle of commodities in each country and uses these relative costs for comparing income across countries. In this scenario, it can be calculated using the following formula: Cost of bundle in U.S. dollars/Cost of bundle in British pounds = 100/75 =
physical capital depreciation
The reduction in the value of physical capital due to obsolescence or wear and tear. -we dont subtract
Productivity Differences
Used to understand the differences in GDP per capita/worker across countries -human capital, physical capital, technology
The ▼ (expenditure, inventory) method of calculating GDP yields exactly the same answer as the production-based method. Even if some of the goods don't get sold, they are ▼ (owned produced) by a firm, and those goods are considered part of the firm's inventory.
Using the expenditure method of calculating GDP, inventory is coded as having been "purchased" by a firm. When both households' expenditures and firms' expenditures are included to accumulate inventories, total expenditures are the same as under the production-based method.
Income
We know Ford generates $150 billion of revenue. Assume it pays $X to its workers and it therefore gives the rest of its revenue ($150 billion - $X) to the people who own the company. So the income that is paid to the workers in Fordica and the income that is paid to the owners of Fordica sums up to: $X + ($150 billion - $X) = $150 billion
accounting for trade balance
X - M X= exports M= Imports
aggregate production function
Y = A * F(K,H) Y is GDP K is the physical capital stock H is the total efficiency units of labor F() is a mathematical function A is an index of technology subject to the law of diminishing marginal product
Use the five categories to calculate GDP
Y= GDP (total market value of goods and services produced in the domestic economy) C= Consumption (household expenditures on consumption of goods and services produced domestically and abroad) I= Investment (expenditures on investment goods by private agents) G= Government Expenditure (government purchases of goods and services including ones produced domestically and abroad)
national income accounting
a framework for calculating GDP, which is a measure of aggregate economic output
one dollar a day per person poverty line
a measure of absolute poverty used by economists and other social scientists to compare the extent of poverty across countries ($1.90)
catch up growth
a process whereby relatively poorer nations increase their incomes by taking advantage of knowledge and technologies already invented in other, more technologically advanced countries
research and development (R&D)
a set of activities intended to identify new ideas that have the potential to result in new goods and services
United Nations' Human Development Index
an index based on life expectancy, education and per capita income indicators
Labor income
any form of payment that compensates people for their work -wages, salary, workers' health insurance, and workers' pension benefits - and indirectly paid including signing bonuses and free parking spaces at work
Capital income
any form of payment that derives from owning physical (a house) or financial capital (stocks and bonds) -dividends paid to shareholders, interest paid to lenders, earnings retained by corporations, rent payments made to landlords, and the benefits of living in your own house
Underground economy
buying and selling of goods and services that is concealed from the government to avoid taxes or regulations or because the goods and services are illegal
exports
goods produced domestically and sold abroad to households, firms and governments in foreign countries -measured in terms of value added --> if us agricultural company exports flour to JApanese supermarkets, the value of this export is the price that the US company receives from the Japanese supermarket chain, not the price at which the Japanese supermarket sells the flour to Japanese households
Inequality between countries
greater than inequality within countries Decreased over time
unemployed conditions
he or she (1) doesn't have a job, (2) has actively looked for work in the prior 4 weeks, and (3) is currently available for work
The source of sustained growth is technological progress, which continuously ▼ increases decreases the amount that an economy can produce, thereby ▼ increasing decreasing the cost over time.
increasing/descreasing
production of a good in a foreign country
is a part of a foreign country's GDP because the factory is in that foreign country
conditional convergence
is the tendency--among countries with similar steady-state levels of output- for poorer countries to grow faster than richer countries and thus for poor and rich countries to converge in income.
Physical capital ▼ is not is a factor in determining how productive an economy's workers are. If a nation's physical capital stock increases, all else constant, the economy will produce ▼ more less the same amount of GDP.
is/more Physical capital is any good, including machines (equipment) and buildings (structures), used for production. For example, in agriculture, aggregate production will depend on agricultural machinery, the equipment used for transporting inputs and outputs, and the buildings in which the output is stored. Though these inputs are all different, we can aggregate them into a single measure and obtain the physical capital stock of the economy using their dollar value. Workers will be more productive when the economy has a bigger physical capital stock, enabling each worker to work with more (or better) equipment and structures. When an economy has more physical capital, or equivalently, a greater physical capital stock, the economy will produce more GDP.
Factors of production
labor, and capital; the two groups of resources that are used to make all goods and services -capital is physical capital, so... land, factories and machines
GDP Equation (National Income Accounting Identity)
market value of domestic production is = total expenditure of domestic economic agents (C + I +G), plus the expenditure of foreign agents on exports from the domestic economy (X) minus the value of domestic expenditure that was imported (M) Y = C + I + G + X - M
Recession
period of reduced economic activity lasting at least two quarters
technological change
process of new technologies and new goods and services being invented, introduced, and used in the economy, enabling the economy to achieve a higher level of real GDP for given level of its factors of production, physical capital stock, and total efficiency units of labor
Growth rate
real GDP per capita or change in quantity between two dates, relative to the baseline quantity - choose two dates (t and t + 1) and denpte real GDP per capita on these two dates by yt and yt+1
sustained growth
refers to a growth process where GDP per capita grows at a positive and relatively steady rate for long periods of time
Technology
refers to a set of devices and practices that determine how efficiently an economy uses its labor and capital
efficiency in production
refers to the ability of an economy to produce the maximal amount of output from a given amount of factors of production and knowledge
Inequality within countries
relatively flat
catch-up growth
relatively poorer countries increase their incomes by taking advantage of knowledge and technology already invented in other, more technologically-advanced countries
during recession, unemployment...
rises
value added
the firm's sales revenue minus its purchases of intermediate products from other firms
value added
the firm's sales revenue minus its purchases of intermediate products from other firms -adding up the value added generated by all firms in the US will sum to U.S. GDP
physical capital
the human-made objects used to create other goods and services
Economic growth
the increase in real GDP per capita of an economy
human capital
the knowledge and skills that workers acquire through education, training, and experience (twice the capital=twice as productive)
the law of diminishing marginal product
the marginal contribution of a factor of production to GDP diminishes when we increase the quantity used of that factor of production
consumption
the market value of consumption goods and services bought by domestic households -frisbees to massages -includes all consumption expenditure except expenditures made on residential construction (investment) -expenditures made to buy pre-existing house or apartments don't show up anywhere in the national income accounts b/c such expenditures are just a transfer of an asset from one household to another and aren't something that was produced in the current year or quarter
Government expenditure
the market value of government purchases of goods and services -tanks, hospitals, roads, bridges -excludes transfer payments and interest paid on govt debt to avoid double-counting
Investment
the market value of new physical capital that is bought by domestic households and domestic firms -residential houses, business inventories (box of cereal at walmart waiting to be sold) -business structures (offices, factories) -business equipment (computers and freight trains)
Moores law
the observation that computing power roughly doubles every two years.
total efficiency units of labor
the product of the total number of workers in the economy and the average human capital (efficiency) of each worker H- total efficiency units of labor L- the product of the total number of workers in the economy h- the average efficiency or human capital of workers H = L x h -equation implies that the total efficiency units of labor in economy can increase if either more workers take part in the production process or if each worker becomes more productiveq
saving rate
the proportion of disposable income that is saved
Productivity
the quantity of goods and services produced from each unit of labor input
Physical capital stock
the value of equipment, structures and other non-labor inputs used in production -workers are more productive when the economy has a bigger physical capital stock, enabling each worker to work with more or better equipment and structures
In deriving GDP using expenditure-based national income accounts, transfer payments are excluded. This is because
they are already included as part of consumption spending. -Transfer payments are omitted when deriving GDP using expenditure-based national income accounts because they represent payments to other agents in the economy who will use those payments to buy goods and services. To avoid double counting, these government payments to other agents are not counted as government expenditures on goods and services.
GNP (Gross National Product)
total dollar value of goods & services produced by a nation at home or away
Identity
two variables are related by an identity when the two variables are defined in a way that makes them mathematically identical
Production-based accounts measure each firm's...
value added
X is greater than M vs X is less than M
value of exports is greater than imports (trade surplus) vs value of exports is less than imports (trade deficit)
