ECON 101 Ch. 15

Export

Domestically produced final goods and services that are sold abroad.

The Equation of GDP:

GDP(Y)= Consumption Expenditure(C) + Investment(I) + Government Purchases(G) + Net exports (NX) Y = C + I + G + NX

Intermediate Goods & Services

Goods and services used up on the production of final goods and services and therefore not counted as a part of the GDP.

Capital Good

a long-lived good that is used in the production of other goods and services.

Net Exports

exports minus imports

Value Added

for any firm, the market value of its product or service minus the cost of inputs purchased from other firms.

Labor Income

(equal to about 1/3 of the GDP) made up of payments to owners of physical capital and intangible capital.

Capital Income

(equal to about 2/3 of GDP) compromise wages, salaries, and the incomes of the self-employed.

Investment is divided into 3 sub categories:

1. Business fixed investment 2. Residential Investment 3. Inventory Investment

Consumption Expenditure is subdivided into 3 categories:

1. Consumer Durable goods 2. Consumer Non-durable goods 3. Services

Nominal GDP

A measure of GDP in which the quantities produced are valued at current-year prices; nominal GDP measures the current dollar value of production.

Real GDP

A measure of GDP in which the quantities produced are valued at the prices in a base year rather than at current prices; real GDP measures the actual the physical volume of production.

Consumer Durable Goods

Long-lived consumer goods such as cars and furniture. *NOTE: that new houses are not treated as consumer durables, but as a part of investment.

Transfer Payments

Payments made by the government in return for which no current goods or services are received, nor do they include interest paid on the government debt.

Import

Purchases by domestic buyers of goods and services that were produced abroad.

Government Purchases

Purchases by federal, state. and local governments of final goods and services; government purchases do NOT include transfer payments.

Final Goods &/or Services

Selling prices of goods and services in the open market.

Consumer Non-Durable Goods

Shorter-lived goods like food and clothing.

Examples of Transfer Payments

Social Security benefits, unemployment, benefits, pensions paid to government workers, and welfare payments.

Investment

Spending by firms on final goods and services, primarily capital goods.

Consumption Expenditure (Consumption)

Spending by households on goods and services such as food, clothing, and entertainment.

Expenditure

The action of spending funds.

Inventory Invesment

The addition of unsold goods to company inventories.

Residential Investment

The construction of new homes and apartment buildings.

Services

The largest single component of consumer spending and includes everything from haircuts to financial, legal and educational services.

GDP (Gross Domestic Product)

The market value of the FINAL goods and services produced in a country during a given period.

Business fixed investment

The purchase by firms of new capitial goods such as machinery, factories, and office buildings.

Physical Capital

physical capital is one of the three primary factors of production, also known as inputs in the production function.

Components of capital income:

profits earned by business owners, the rents paid to owners of land or buildings, interest received by bondholders, and the royalties received by the holders of copyrights or patents.