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42 Cards in this Set
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National income accounting
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the techniques used to measure the overall production of the economy and other related variables for the nation as a whole
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Intermediate goods
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products that are purchased for resale or further processing or manufacturing
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Final goods
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goods and services that have been purchased for final use and not for resale or further processing or manufacturing
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Multiple counting
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wrongly including the value of intermediate goods in the gross domestic product; counting the same good or service more than once
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Expenditures approach
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the method that adds all expenditures made for final goods and services to measure the gross domestic product
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Income approach
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the method that adds all the income generated by the production of final goods and services to measure the gross domestic product
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Gross private domestic investment (Ig)
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expenditures for newly produced capital goods (such as machinery, equipment, tools, and buildings) and for additions to inventories
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Net private domestic investment
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gross private domestic investment less consumption of fixed capital; the addition to the nation’s stock of capital during a year
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Government purchases (G)
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the expenditures of all governments in the economy for those final goods and services
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Net exports (Xn)
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exports minus imports
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Taxes on production and imports
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a national income accounting category that includes such taxes as excise, business property taxes, and tariffs which firms treat as costs of producing a product and a pass on (in whole or in part) to buyers by charging a higher price
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National income
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total income earned by resource suppliers for their contributions to gross domestic product plus taxes on production and imports; the sum of wages and salaries, rent, interest, profit, proprietors’ income, and such taxes
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Consumption of fixed capital
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an estimate of the amount of capital worn out or used up in producing the gross domestic product; also called depreciation
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Net domestic product
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gross domestic product less part of the year’s output that is needed to replace the capital goods worn out in producing the output; the nation’s total output available for consumption or additions to the capital stock
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Personal income (PI)
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the earned and unearned income available to resource suppliers and others before the payment of personal taxes
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Disposable income (DI)
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personal income less personal taxes; income available for personal consumption expenditures and personal saving
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Nominal GDP
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the GDP measured in terms of the price level at the time of measurement (unadjusted for inflation)
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Real GDP
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gross domestic product adjusted for inflation; gross domestic product in a year divided by the GDP price index for that year, the index expressed as a decimal
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Price index
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an index number that shows how the weighted-average price of a market basket of goods changes over time
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Personal consumption expenditures
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the expenditures of households for durable and nondurable consumer goods and services
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Definition of opportunity cost
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the amount of other products that must be forgone or sacrificed to produce a unit of product
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definition of GDP
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Gross domestic product- the total market value of all final goods and services produced annually within the US
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definition of price ceiling
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a legally established maximum price for a good or service
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definition of price floor
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a legally determined minimum price above the equilibrium price
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definition for law of demand
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the prinicple that, other things equal, an increase in a product's price will reduce the quantity of it demanded, and conversly for a decrease in price
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definition for law of supply
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the priniciple that, other things equal, an increase in the price of a product will increase the quantity of it supplied, and conversely for a price decrease
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Characteristics of a command system:
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most resources owned by the government
almost no private ownership major economic decisions made through central economic planning |
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Characteristics of a command system, cont...
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central planning board makes decisions on the composition and distribution of output, use of resources, and organization of production
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Problems with the command economy:
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coordination problem
incentive problem |
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Characteristics of a market system:
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private ownership of resources
use of markets and prices to coordinate and direct economic activity |
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Characteristics of a market system cont...
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competition among buyers and sellers
incentives provided through monetary rewards in the form of wages and profits |
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Government role in the capitalist system:
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protection of private property
design rules and regulations for functioning of the market economy |
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Government role in a capitalist system cont...
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promote economic stability and growth
provision of public goods promote income redistribution |
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How to calculate GDP (Gross Domestic Product):
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C+Ig+G+Xn
C (Consumption)+Ig (Gross Domestic Private Investment)+ G (Government Purchases)+ Xn (Exports- Imports) |
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How to calculate NDP (Net Domestic Product):
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GDP - Consumption of fixed capital
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How to Calculate NI (National Income):
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NDP + Net Foreign Factor Income - Statistical Discrepancy
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How to calculate PI(Personal Income):
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NI - Taxes on Production and Imports - Social Security Contributions - Corporate Income Taxes _ Undistributed Corporate Profits + Transfer Payments
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How to calculate DI (Disposable Income):
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PI - Personal Taxes
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define Net Foreign Factor Income
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incomes earned by US citizens abroad - incomes earned by foreigners in the US
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How to calculate Price Index:
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Nominal GDP/Real GDP x 100
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How to calculate Nominal GDP:
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units of output x price per unit
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How to calculate Real GDP
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Nominal GDP/Price Index
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