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42 Cards in this Set

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