Macro SECOND FINAL
The price of a select market basket of goods and services
A consumer price index attempts to measure changes in:
disinflation
A decrease in the rate of inflation
the bureau of economic analysis (BEA)
An agency of the U.S. Department of Commerce that compiles the national income and product accounts (NIPA) for the US economy
Net Domestic Product (NDP)
GDP - consumption of fixed capital (depreciation)
-$200 billion
GDP in an economy is $4,600 billion. Consumer expenditures are $3,500 billion, government purchases are $900 billion, and gross private domestic investment is $400 billion. Net exports are:
net exports, X
Exports (X) - Imports (M)
hyperinflation
Extremely high inflation; caused by a very rapid increase in the money supply
net investment is negative.
If depreciation (consumption of fixed capital) exceeds domestic investment, we can conclude that:
recession or contraction
Occurs if GDP is falling for two consecutive quarters
earnings or allocations approach = income approach
viewing GDP in terms of the income derived or created from producing it
to increase GDP
we want to expand PPF to?
no incentives for producers
what are the harmful effects of deflation?
Decline Purchasing power and Future Uncertainty
what are the harmful effects of inflation?
voluntary and involuntary
what are the two types of unemployment?
it measures the value of output in monetary terms
what does GDP do?
to account for expenditures that are diverted to the government
why do national income accountants add these indirect business taxes to wages, rent, interest, and profits in determining national income?
all investment goods
"gross" means
price index in given year
(price of market basket in specific year/price of same market basket in base year) x 100
market value
(price x quantity) - output valued at selling price -GDP is influenced by changes in price
gross private domestic investment
-All final purchases of machinery, equipment, and tools by business enterprises -All construction -Changes in inventories -Money spent on research and development or for the creation of new works of art, music, writing, film, and so on ^ these all fall under what heading
government purchases
1) expenditures for goods and services that government consumers in providing public services 2) expenditures for publicly owned capital such as schools and highways, which have long lifetimes 3) government expenditures on R&D and other activities that increase the economy's stock of know-how ^ these are ?
output approach (expenditures approach) and earnings or allocations approach (income approach)
2 ways of looking at GDP
Expenditures on Final Goods and Income Received for producing Final Goods
2 ways of measuring GDP
corporate income taxes, dividends, and undistributed corporate profits (unretained earnings)
3 corporate profits
1. public transfer payments 2. private transfer payments 3. stock market transactions
3 types of financial transactions
1) consumption (C) 2) investment (I) 3) government purchases (G) 4) net exports (NX)
4 components of GDP
stock of capital goods
An increase in inventories is an addition to the ________________________________.
inflation
An increase in the overall price level in the economy; the overall price level is basically the average of prices in the economyc
expansion
Business is booming and consumption is high. GDP is increasing; Unemployment is typically low; However, excessive expansions can lead to higher inflation
GDP
C + I + G + X
multiple counting
Including the value of intermediate goods; distorts the value of GDP
long-run economic growth
Over 10, 20 or 50; increase in aggregate output ("for real" i.e. new buildings, new schools, infrastructure, goods and services)
Short-run economic growth
Over a period of a few years (it is associated to business cycles)
has been adjusted for changes in the price level.
Real GDP and nominal GDP differ because the real GDP:
current output at base year prices
Real GDP measures:
public transfer payments
Social security payments, welfare payments, and veteran's payments that the government makes directly to households; contribute nothing to current production in return --> to include on GDP = overstate the year's output
GDP in 2008 is $500 billion
Suppose the total monetary value of all final goods and services produced in a particular country in 2008 is $500 billion and the total monetary value of final goods and services sold is $450 billion. We can conclude that:
true
T or F. GDP is a monetary measure
true
T or F. GDP is a quantitative measure.
false, it does NOT
T or F. Investment does include noninvestment transactions such as the transfer of paper assets (stocks, bonds) or the resale of tangible assets (houses, jewelry, boats)
true
T or F. Secondhand sales are excluded from GDP.
false, it is.
T or F. The US is NOT a service economy.
understate economic welfare because it does not take into account increases in leisure
The GDP tends to:
disposable income
The amount of money that households have left over after paying their personal taxes
$3,237 billion
The following are national income account data for a hypothetical economy in billions of dollars: gross private domestic investment ($320); imports ($35); exports ($22); personal consumption expenditures ($2,460); and, government purchases ($470). What is GDP in this economy?
GDP
The monetary value of all final goods and services produced by the United States economy during a year is:
deflation
The opposite of Inflation, a decrease in the price level; HURTS DEBTORS
unemployment
The percentage of the labor force that is unemployed.
base year
The point of reference for comparison of prices in other years; base period
The construction of a new computer chip factory by Intel
Which would be considered an investment according to economists?
deflate, inflate
_____________ GDP when prices rise and __________ GDP when prices fall
unadjusted GDP or nominal GDP
a GDP based on the prices that prevailed when the output was produced; GDP measured in current dollars; can increase because the quantity of output increased or because prices increased
adjusted GDP or real GDP
a GDP that has been deflated or inflated to reflect changes in the price level; GDP measured using constant base year prices
unpaid work
a GDP understates a nation's total output because it does not count ?
inventory
a firm's stock of unsold goods
price index
a measure of the price of a specified collection of goods and services, called a "market basket," in a given year as compared to the price of an identical (or highly similar) collection of goods and services in a reference year
personal income
all income received whether earned or unearned
capital
all new output that is not consumed
involuntary
big concern, waste of resources
disposable income
consumption + savings
personal consumption expenditures
consumption expenditures by households
Gross Domestic Product (GDP)
defines aggregate output as the dollar value of all final goods and services produced within the borders of a country during a specific period of time
Capital Consumption Allowance
depreciation + the value of capital lost due to accidental damage
investment, "unconsumed output"
increases in inventories (unsold goods) are considered to be ______________ because they represent, in effect _________________________.
net investment
excludes replacement investment
final goods and services
goods and services produced for final use by final users
market price
goods are valued at their _____________
net investment
gross investment - depreciation
replacement, added
gross investment includes investment in _______________ capital and ____________ capital
output growth
higher real GDP
taxes on production and imports
includes general sales taxes, excise taxes, business property taxes, license fees, and customs duties
net private domestic investment
includes only investment in the form of added capital
expenditure
income =
GDP deflator
measure of the overall level of prices; 100* nominal GDP/real GDP
national income accounting
measures economy's overall performance
Gross Domestic Product (GDP)
measures total income of everyone in the economy; also measures total expenditure on the economy's output of g&s; the market value of all final goods & services produced within a country in a given period of time.
real GDP
nominal GDP / price index X 100
households, businesses, and government (or foreign buyers)
on the expenditure side of GDP, all final goods produced by the economy are bought by three domestic sectors:
wage, rent, interest, and profit
on the income side, the total receipts acquired from the sale of that total output are allocated to the suppliers of resources as: (4 things)
durable goods
products that have expected lives of 3 years or more
nondurable goods
products with less than three years of expected life
stagflation
recession with inflation. Complicated
planned inventory changes
reflect management's decision to add to or to reduce its on-hand stock
unplanned inventory changes
reflect the results of unexpected sales variations
intermediate goods
used as components or ingredients in the production of other goods; products that are purchased for resale or further processing or manufacturing
disinvesting
using up more capital than it is producing
output approach = expenditures approach
viewing GDP as the sum of all money spent in buying it
Gross Output (GO)
sums together the dollar value of the economic activity that takes place at each of four stages into which all economic activity can be grouped: resource extraction, production, distribution, and final output (GDP).
depreciation (capital consumption allowance)
the amount of capital that is used up over the course of a year; the amount by which the value of an asset falls in a given period
stock market transactions
the buying and selling of stocks and bonds is just a matter of swapping bits of paper; not included on GDP
consumption of fixed capital
the huge depreciation charge made against private and publicly owned capital each year
value added
the market value of a firm's output less the value of the inputs the firm has bought from others
private transfer payments
the money that parents give children or the cash gifts given during the holidays; produce no output; do not enter into GDP
aggregate output
the primary measure of the economy's performance is its annual total output of goods and services
national income
the total of all sources of private income + government revenue from taxes on production and imports
services
the work done by lawyers, hair stylists, doctors, mechanics, and other service providers
gross investment
total investment, which includes investment expenditures that simply replace worn out capital goods; such replacement investment does not add to the total capital stock
consumption
total spending by households on g&s; most important factor in GDP
investment
total spending on goods that will be used in the future to produce more goods
1) Purely Financial Transactions 2) Secondhand Sales
two types of nonproduction transactions:
