Macroeconomics

Public Transfer Payment

A Financial Transaction excluded from GDP. Payments the government makes to households. Ex. Social security payments, welfare payments, and veterans payments.

Monetary Measure

A way to evaluate the relative worth of the vast number of goods and services produced in different years. (GDP)

National Income Accounting

A way to measure the overall performance in the economy

National Income

All income earned through the use of american-owned resources, whether located at home or abroad. Includes taxes on production and imports

Consumer Expenditures

All purchase of durable goods, non durable goods and services by households.

Investment

An increase in the stock of capital goods (a good produced to produce another good). Has to do with the creation of new capital... merely selling of capital does not create new capital.

Expenditures Approach

C+Ig+G+(X-M)

CPI

Consumer price index. Changes in consumer prices

GDPn

E(Pi*Qi)

Secondhand Sales

Excluded from GDP, a nonproduction transaction. The sale of used goods which contributes nothing to current production.

Nonproduction Transactions

Excluded from GDP. Contribute nothing to current production of final goods and would overstate GDP. Two types: Financial transactions and secondhand sales.

Net Exports

Exports-Imports! Value of eXports must be included in GDP because produced in US borders. Value of iMports must be excluded because they are not produced in US Borders. Xn=X-M

Net Domestic Product

GDP adjusted for depreciation.Tells how much new output is consumed. Represents total output that the entire economy can consume without impairing its capacity to produce in ensuing years. More accurate. NDP=GDP- consumption of fixed capital (depreciation)

Composition and Distribution of Output

GDP does not consider if the mix of goods and services is potentially detrimental or enriching for society. Goods and services are assigned equal weight as long as they sell for the same price. It also reveals nothing about the distribution of output. Thus, well being is overstated.

GDP & the Environment

GDP does not consider that the social cost of by-products reduces GDP. Costs are not deducted so GDP overstates well being

Non Economic Sources of Well being

GDP does not measure total well being. Many things make society better off without increasing GDP. Thus welbeing can be overstated or understated

Leisure

GDP does not take into account how shorter work leads to an increase in leisure time which causes a positive effect on well being. understates.

Improved Product Quality

GDP is quantitative measure not qualitative. Does not consider that improvements in product quality have an effect on well being just like quantity does. Thus, GDP is understated

The Underground Economy

GDP is understated because it does not take into account illegal activities or people who engage in legal activities but do not report their full income.

Non Market Activities

GDP only includes market activities-transactions in which output or resources are traded for money. It understates because it does not count unpaid work.

Final Goods

Goods and services that are purchased for final use by the consumer, not for resale, for further processing or manufacturing.

Intermediate Goods

Goods and services that are purchased for resale, for further processing, or manufacturing. Excluded from GDP

Gross Private Domestic Investment (Ig)

Investment expenditures by businesses. Includes all final purchases of machinery, equipment, and tools by business enterprises; All construction; and changes in inventories. Private and Domestic signify that it is taking place inside the country. Used in calculating GDP Consists of a) Newly produced housing, b) any changes in inventories, c) spending on new plant and equipment of during the year

NIPA

National Income and Product Accounts compile data of economic activity and production. It is a part of the Bureau of Economic Analysis (BEA).

Multiple Counting

Value of final goods already includes the value of intermediate goods that were used in producing them. Therefore intermediate goods are not included in GDP or the value would be distorted.

Disposable Income

Yd is the money consumers have left after paying government taxes. Yd=C+S

Price Index

a measure of the of a specified collection of goods and services (market basket) in a given year compared to the price of a similar collection of goods and services in a reference year (base year)

Market Basket

a specified collection of goods and services

Real GDP

adjusted. Output valued at constant base year prices. Has been inflated or deflated to reflect changes in the price level. Reveals market value of each year's output measured in terms of dollars that have the same purchasing power as dollars had in the base year.

Imports

goods and services produced outside of the united states

Exports

goods and services produced within the borders of the US. Are included in GDP when

Non-Durable Goods

goods that last for short time. ex. milk, bread, pencils

Durable Goods

goods that last over time. ex.refrigerators, automobiles

Leakages from Circular Flow

iMports, savings, taxes

Net Private Domestic Investment (In)

investment only in the form of added capital. it is gross investment-depreciation. Not used in calculating GDP What is left over from total new private investment after depreciation

Injections in Circular flow

investment, government expenditures, eXports

Depreciation

the amount of capital used up in a year The annual amount allocated to wear and tear on private investment

Value Added

the market value of a firms output less the value of the inputs the firm has bought from others. At each stage it is the difference between what a firm pays for inputs and what it receives from selling the product made from those inputs

Gross Income

total income received earned or unearned.

Nominal GDP

unadjusted. Output valued at current prices.

Income Approach

w+r+i+π

Government Expenditures (G)

Two parts: 1. Expenditures spent on goods & services that the government consumes in providing public services 2. Expenditures on publicly owned capital (goods that have a long lifetime...school, highway, bridge). Purchases include all expenditures on final goods & services, and direct purchase of resources, labor. Government Transfer Payments Excluded

Bureau of Economic Analysis (BEA)

This department is responsible for compiling the NIPA for the U.S. Economy so that economists and policymakers can assess the health of the economy, track the long-run course, and formulate policies that will safeguard and improve the economy's health.

Private Transfer Payments

Transfer of funds from one private individual to another. Produce no output. A financial transaction excluded from GDP. Ex. Money given to children from parents.

Shortcomings of GDP

Non Market Activities, Leisure, Improved Product Quality, The Underground Economy, GDP& the Environment, Composition and Distribution of Output, Non-economic Sources of Well-being

Price Index Equation

Price Index=E(Picy*Qiby)/E(Piby*Qiby) X 100

Aggregate Output

Primary measure of the economy's performance. It is the annual total output of goods and services. One way to measure is to calculate GDP.

Financial Transactions

Public Transfer Payments, Private Transfer Payments, and Stock Market Transactions. Excluded from GDP, a nonproduction transaction.

Real GDP Equation

Real GDP=nominal GDP/price index X100

Stock Market Transactions

The buying and selling of stocks and bonds is just changing the ownership and creates nothing for current production. A financial transaction excluded from GDP.

Gross Domestic Product (GDP)

The total value of all final goods and services produced in a country in a year