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55 Cards in this Set

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GDP
Gross Domestic Product
Gross Domestic Product (GDP)
Nation's total income and total expenditure on its output of goods and services
CPI
Consumer Price Index
Consumer Price Index (CPI)
Level of prices
Unemployment rate
Fraction of workers unempoyed
National Income Accounting
accounting system used to measure GDP and related stats
Stock
quantity measured at a given time
Flow
Quantity measured per unit of time
Used Goods relative to GDP
Not included in GDP
Inventories Relative to GDP
Increase in inventory is counted as expenditure by the firm owners--counts towards GDP. However sale of inventory does NOT count.
Value Added
Way of calculating GDP--equals the value of the firms output less the value of the intermediate goods that the firm purchases
Imputed Value
Estimated value of goods without market prices--housing has an imputed value.
Problems with GDP
No way of accounting for underground activity
Doesn't account for inflation (if P or Q rises GDP still rises)
Nominal GDP
Value of goods and services measured at current prices
Real GDP
Value of goods and services measured using a constant set of prices
GDP Deflator
Nominal GDP/Real GDP
GDP deflator reflects what's happening to the overall prices of the economy.
Chain-weighted Deflators
Deflators of GDP in which the base year changes continuously
National Income Accounts Identity
Catagories which dollars of GDP fall into:
Consumption, Investment, Government purchases, net exports
C
(the variable)
Consumption
Consumption
Goods bought by households.
Nondurable Goods
Last a short time.
Ex: Food, clothing
Type of Consumption
Durable Goods
Last a long time.
Ex: Cars, TV
Type of Consumption
Services
Services rendered for money.
Type of Consumption
Investment
Goods bought for future use
Business Fixed Investment
Purchase of new plant and equipment by firms.
Type of investment
Residential investment
Purchase of new housing by households and landlords
Type of investment
Inventory investment
Increase in firms' inventories of goods. If inventory is falling, inventory investment is negative.
G
(The variable)
Government Spending
I
(The variable)
Investment
NX
(The variable)
Net Exports
Government Purchases (G)
Goods and services bought by federal, state and local governments.
Ex: Military, highways, government workers
Net Exports
Value of goods and services exported to othr countries minus the value of goods and services foreigners provide us.
GNP
Gross National Product
Gross National Product (GNP)
Total income earned by nationals
GNP=GDP+Factor Payments from Abroad- Factor Payments from Abroad
NNP
Net national product
Net National Product (NNP)
GNP-Depreciation
Consumption of Fixed Capital
Depreciation in national income accounts, equal to 10% of GNP
Depreciation
Losing value over time
National Income
NNP-Indirect Business Taxes
Measures how much everyone in the economy has earned.
Five Catagories of National Income
Compensation of Employees, Proprietors' Income, Rental Income, Corporate Profits, Net Interest
Compensation of Employees
(As part of National Income)
70%--Wages and fringe benefits earned by workers
Proprietors' Income
(As part of National Income)
9%--Income of noncoprorate businesses, such as small farms, mom and pop stores, law partnerships
Rental Income
(As part of National Income)
2%--Income that landlords receive including imputed rent that homeowners pay themselves, less expenses such as depreciation
Corporate Profits
(As part of National Income)
12%--The income of coporations after payments to their workers and creditors
Net Interest
(As part of National Income)
7%--The Interest domestic businesses pay minus the interest they receive plus interest earned from foreigners
Personal Income
National income
-Corporate Profits
-Social insurance contributions
-net interest
+Dividends
+Government Transfers to Ind.
+Personal interest Income
Disposable Personal Income
Amount households and noncoporate businesses have available to spend after satisfying their tax obligations to government.
=Personal income-Personal tax and nontax payments
Laspeyres Index
Fixed basket, tends to overstate cost of living because it does not take into account substitute goods
Paasche Index
Changing basket, understates increase in cost of living because it does not reflect reduction in welfare that would hve come from more expensive goods
Problems with CPI and Inflation
~Does not allow for substitute goods to be accounted for
~New goods raise real value of $ because there are more options but CPI does not take it into account
~Does not account for change in quality
Labor Force Participation Rate
labor force/adult population*100
Labor Force
Sum of empoyed and unemployed
Discouraged Worker
Worker no longer seeking employment, not counted as part of labor force
Unemployed
Doesn't have a job but wants one
Okun's Law
Higher rate of unemployment leads to a decrease in GDP