Module 2 macro

GDP

measure of aggregate output

trough

output and employment bottom out

expansion

real GDP, income, and employment rise

Business cycle

reoccurring increases and decreases in the level of economic activity over periods of years; consists of peak, recession, trough, and expansion phases

demand-pull inflation

resources are already fully employed and business sectors cannot respond to excess demand by expanding output

economic investment

spending for the production and accumulation of capital and additions to inventories

financial assets

stock, bond, fund

recession

a period of declining real GDP, accompanied by lower real income and higher unemployment

Net domestic products (NDP)

gross domestic product less the part of the years output that is needed to replace the capital goods worn out in producing the output

Net investment equation

gross investment - depreciation = net investment

real assets

house, land, or factory

multiple counting

wrongly including the value of intermediate goods in the GDP

unemployment

the state a person is in if they cannot get a job

real income

a measure of the amount of the goods and services nominal income can buy

In national Income accounting, government purchases include: A) purchases by federal, state, and local governments B) purchases by the federal government only c) government transfer payments D) purchases of goods for consumption, but not public capital goods.

A

In national income accounting, consumption expenditures include purchases of: A) both new and used consumer goods B) automobiles for personal use, but not houses C) consumer durable and nondurable goods, but not services D) consumer nondurable goods and services, but not consumer durable goods

B

rule of 70

a method for determining the number of years it will take for some measure to double, given its annual percentage increase

GDP equation

C+Ig+G+Xn

nominal GDP

GDP measured at the price level at the time of measurement

Net domestic product equation

GDP- consumption of fixed capital

real GDP

Nominal GDP / Price index (in hundredths)

as defined in national income accounting, investment includes: A) business expenditures on machinery and equipment B) all consumption C) imports, but not exports D) all nonfood items

a

net exports are negative when A) a nation's imports exceed its exports B) the economy's stock of capital goods is declining C) depreciation exceeds domestic investment D) a nation's exports exceed its imports

a

which of the following best describes disposable income? A) income received by households less personal taxes B) the before-tax income received by households C) all income earned by resource suppliers for their current contributions to production D) the market value of the annual output net of consumption of fixed capital

a

GDP gap

actual GDP - potential GDP

inflation

an increase in the overall level of prices

aggregate output

annual total output of goods and services

Personal income is most likely to exceed national income: A) when gross and net investment are equal B) during a period of recession or depression C) when gross investment exceeds net investment D) during a period of extended inflation

b

peak

business activity has reached a temporary maximum, near or at full employment, close to economy's capacity

Tom Atoe grows tomatoes for home consumption. This activity is: A) excluded from GDP in order to avoid double counting B) excluded from GDP because an intermediate good is involved C) production but is excluded from GDP because no market transaction occurs D) included in GDP because it reflects production

c

Which of the following do national income accountants consider to be investment? A) the purchase of an automobile for private, non business use B) the purchase of corporate bonds C) the purchase of a new house D) the purchase of gold coins

c

government purchases include government spending on: A) Government consumption goods only B) Public capital goods only C) government consumption goods and public capital goods D) government consumption goods, public capital goods, and transfer payments

c

the value of U.S. imports is A) added to exports from exports when calculating GDP because imports reflect spending by Americans B) subtracted from exports when calculating GDP because imports do not constitute spending by Americans C) subtracted from exports when calculating GDP because imports do not constitute production in the United States D) added when calculating GDP because imports do not constitute production in the United States

c

sticky prices

product prices that remain in place even though supply or demand has changed

An economy is enlarging its stock capital goods: A) when net investment exceeds gross investment B) when gross investment is positive C) When replacement investment exceeds gross investment D) when gross investment exceeds replacement investment

d

If the economy adds to its inventory of goods during some year: A) gross investment will exceed net investment by the amount of the inventory increase B) this amount should be ignored in calculating that year's GDP C) this amount should be subtracted in calculating that year's GDP D) this amount should be included in calculating that year's GDP

d

GDP Gap

difference between actual and potential GDP

Gross Private Domestic Investment

expenditures for newly produced capital goods and for additions to inventories EX) machinery, equipment, tools

personal income

includes all income received, whether earned or unearned

real GDP per capita

inflation-adjusted output per person

National income accounting

measures economy's overall performance

real GDP

measures the value of final goods and services produced within the borders of a country during a specific period of time

nominal income

number of dollars received as wages, rents, interests, or profit

frictional unemployment

one who has been laid off a job and is currently in-between jobs

structural unemployment

one who's skills are not demanded by employers, who lack sufficient skills to obtain employment, or who cannot easily move to locations where jobs are available

cost push inflation

output and employment declining causing prices to rise

labor force

people who are willing and able to work even if unemployed

Disposable income

personal income less personal taxes

private transfer payments

produce no output; they simply transfer funds from one private individual to another and consequently do not enter into GDP

final goods

products purchased by their end users (gasoline, sunglasses)

intermediate goods

products that are purchased for resale or further processing or manufacturing (steal beam, vegetables for salad )

depreciation

the amount allocated is an estimate of how much of the capital is being used up each year

personal consumption expenditures

the expenditures of households for durable and nondurable consumer goods and services

value added

the market value of a firm's output less the value of the inputs the firm has Brough from others

income approach

the method that adds all the income generated by the production of final goods and services to measure the GDP

nominal interest rate

the percentage increase in money that the borrower pays the lender

real interest rate

the percentage increase in purchasing power that the borrower pays the lend

financial investment

the purchase of financial asset or real asset or the building of such assets in the expectations of financial gain

public transfer payments

the social security payments, welfare payments, and veterans' payments that the government makes directly to households

national income

the total of all sources private income (employee compensation , rents, interest, proprietors income, and corporate profits) plus government revenue from taxes on production and imports

unemployment rate

unemployed/ labor force x 100

cyclical employment

unemployment that is caused by decline in total spending

demand shocks

unexpected changes in the demand for goods and services

supply shocks

unexpected changes in the supply of goods and services