Econ ch 10

Recession

2 consecutive quarters of falling GDP, really GDP declines, lower income, rising unemployment, falling profits, increased bankruptcies

Suppose that an economy produces 20,000 units of good A. Which sells at $3 a unit and 40,000 units of good B. Which sells at $1 per unit. Production of good A contributes?

3/2 times as much GDP as production B (20,000x3=60,000 40,000x1=40,000 60,000/40,000=3/2)

A transfer payment is

A form of govt spending that is not made in exchange for a current produced good or service

Simple Circular Flow Diagram, with households and firms, GDP can be computed

As the income received by households, in form of wages, rent, and profit

inflation rate

Deflator GDP year 2 - deflator GDP year 1/ deflator GDP year 1 x100

If an economy's GDP falls, then it must be the case that economy's

Income and expenditure both fall

Deflation GDP

Nominal GDP for year/Real GDP for same year x 100

Y= C+I+G+NX

Y= GDP C= consumption I= investment G= govt purchases NX= net exports

Which of the following statements about GDP is correct?

all of the above

Recessions are not associated with which of the following?

falling unemployment

Gross Domestic Product measures

income and expenditures

Which of the following is included in the consumption component of U.S. GDP?

purchases of natural gas by U.S. households

If nominal GDP doubles, and the GDP deflator doubles, then Real GDP

remains constant

GDP

the market value of all final goods and services produced within a country in a given period of time

Microeconomics

the study of how households and firms make decisions and how they interact in markets

James owns two houses. He rents one house to the Johnson family for $10,000 per year. He lives in the other house. If he were to rent the house in which he lives, he could earn $12,000 per year in rent. How much do the housing services provided by the two houses contribute to GDP?

$22,000 (12,000+10,000)

Transactions involving items produced in the past, such as the sale of a 5-year-old automobile by a used car dealership or the purchase of an antique rocking chair by a person at a yard sale, are

not included in current GDP because GDP only measures the value of goods and services produced in the current year.

Real GDP

the production of goods and services valued at constant prices

Nominal GDP

the production of goods and services valued at current prices

Macroeconomics

the study of economy-wide phenomena, including inflation, unemployment, and economic growth