Chapter 12 - Gross Domestic Product & Growth Terms
National Income Accounting
a system economists use to collect and organize macroeconomic statistics on production, income, investment, and savings - to monitor the US Economy
Stagflation
is a decline in real GDP (output) combined with a rise in the price level (inflation)
Income Approach to calculate - GDP
method to calculate GDP by adding up all the incomes in the economy.
Limitations of GDP - listed below* GDP does not take into account ---------------------------------
non-market activities, the under-ground economy, negative externalities, and quality of life
*Contraction
period of economic decline marked by falling real GDP
Real GDP Per Capita
real GDP divided by the total population of a country.
*Dollar Value
refers to the total cash value of the sales of all goods and services produced in a country's households, firms, ad government in a calendar year.
*In a Given Year
takes into account when a good was produced.
Aggregate Demand
the amount of goods and services in the economy that will be purchased at all possible price levels
Gross National Product (GNP)
the annual income earned by a nation's firms and citizens.
Price Level
the average of all prices in the economy
Gross Domestic Product (GDP) 4 parts listed below*
the dollar value and services produced within a country's borders in a given year.
*Peak
the height of an economic expansion, when real GDP stops rising.
Depreciation
the loss of the value of capital equipment that results from normal wear and tear.
Capital Deepening
the process of increasing the amount of capital per worker.
Savings Rate
the proportion of disposable income that is saved.
Aggregate Supply
the total amount of goods and services in the economy available at all possible price levels.
*Non Durable Goods
those goods that last a short period of time, such as food, light bulbs, and sneakers.
*Durable Goods
those goods that last for a relatively long time, such as refrigerators, cars, and DVD players
*Trough
when the economy has bottomed out - the lowest point in an economic contraction. At that point, real GDP stops falling and a new period of expansion begins.
Saving
income not used for consumption (spending)
Phases of Business Cycle* definitions below
1) Expansion 2) Peak 3) Contraction 4) Trough
Business Cycles are affected by 4 Main Economic Variables.
1) business investment 2) interest rates and credit 3) consumer expectations 4) external shocks
*Produced within a Country's Borders
Because we are trying to find the country's GDP we can look only at goods and services produced within that country.
*Nonmarket Activities
GDP does not measure goods and services that people make or do themselves - like, caring for children, mowing the lawn, cooking dinner, etc....
Nominal GDP (AKA) "Current GDP"
GDP measured in current prices
Recession
If real GDP falls for two consecutive quarters (at least six straight months - a prolonged economic contraction.- marked by unemployment reaching 6%-10%
Expenditure Approach (AKA) Output-Expenditure Approach - to calculate GDP
One of two methods the government uses to calculate the GDP. First expenditures/amounts spent are estimated on four final goods and services 1) consumer goods and services 2) business goods and services 3) government goods and services 4) net exports
* Negative Externalities
Unintended economic side effects, or externalities, have a monetary value that often is not reflected in GDP - power plant that pollutes the air.
*Expansion
a period of economic growth as measured by a rise in real GDP
Business Cycle
a period of macroeconomic expansion followed by one of macroeconomic contraction
Depression
a recession that is especially long and severe - high unemployment and low economic output.
Leading Indicators
a set of key economic variables that economists use to predict future trends in a business cycle.
Economic Growth
a steady, long-term increase in real GDP
Net Exports
are found by adding up exports--goods produced in the country but purchased in other countries--and then subtracting imports.
*Final Goods and Services
are products in the form sold to consumers.
Intermediate Goods
are products used in the production of final goods.
*Quality of Life
economists and politicians interpret rising GDP as a sign of rising well being - more goods and services do not necessarily make people any happier. Things not counted in GDP that make people happy - pleasant surroundings, ample leisure time, and personal safety.
Real GDP
expressed in constant and unchanging prices
*The Underground Economy
income never reported to the government - black market transactions, illegal goods, illegal gambling, under-table wages