Macro SECOND FINAL

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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:


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