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52 Cards in this Set
- Front
- Back
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national income accounts |
try to capture all the transactions that take place in a year. |
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income |
measures the distribution of proceeds from sales. |
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production |
measures production and sales (GDP & GNP)
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both GDP & GNP should.... |
be equal |
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what is Gross Domestic Product ? |
the total market value of all final goods and services in an economy in a year. ( Production within U.S Borders) |
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Gross National Product |
GDP plus income earned abroad annually. |
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Real GDP is... |
the measure of output that controls for price change. |
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Nominal GDP is... |
the value in current dollars |
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nominal GDP equation.... |
yr. 1: product x value = nominal value (yr1)
Yr. 2: Product x value= nominal value (yr2)
nominal value (yr.2) - nominal value (yr. 1) |
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components of GDP |
C=consumption I=investments G=government X=net exports |
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what is consumption when dealing with GDP |
durable/nondurable goods and services
*service= fastest growing part of consumption *67% of all economic activities. |
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what are investments when dealing with GDP |
Purchase of new plant and equipment *news home construction *inventory stock *20% of GDP |
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What is government when dealing with GDP |
Government purchase of goods and services *18% of GDP |
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What are net exports when dealing with GDP |
goods that are exported out of the U.S.
*-5% |
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definition of national income |
the total income earned by a nation's residents |
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depreciation |
loss of value of assets |
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indirect taxes |
sales and excise taxes |
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national income consists of |
employee compensation -wages corporate profits -keep to reinvest proprietors income- what small business did not pay out rental income interest paid from Business firm to house hold |
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Real GDP growth equation = percentage change |
Year1: (product 1x value1) + (product 2 x value 2) year 1: solution1+solution 2 = year 1 value
year2: (product 1x value1) + (product 2 x value 2) Year2: solution1+solution 2 = year 2 value (year 2 Value - year 1Value) / (year1 Value) =real GDP growth |
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recession |
two consecutive quarters of negative growth |
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depression |
a severe recession; not just consecutive quarters |
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what is a peak |
the date at which a recession starts |
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trough |
the date at which output stops falling and the recession ends |
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expansion |
the period in the economic or business cycle during which the economy grows. |
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full employment output |
the level of Y when the labor market is in equilibrium |
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factor market |
owners of factors of production sell them |
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Product Market |
organizations who produce, sells |
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macroeconomics |
the natural rate of employment economic growth economic stability |
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employment act of 1946 |
the objective was/is economic stability
- address the unemployment and inflation -commits us to policy of policy of maximum employment and stable prices. -set up council of economic advisors to the president -two annual reports (1 from the president and 1 from the council): on the state of the economy -set definitions for how we track employment *employed:have a job *unemployed: no job but actively seeking *Labor force: employed&unemployed
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bureau of labor stats |
collects employment data |
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issues with unemployment numbers |
-discourages workers: looked for a job in the recent past but could not find one so they stopped looking. -underemployed: working part time but wanting to work full-time; a job that is below your skill track.
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U3 measure of unemployment |
official rate: # set out based on employment act of 1946 (does not pick up discouraged or underemployed)
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U6 measure of unemployment |
unofficial rate: more accurate # but still not fully accurate. |
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3 types of unemployment |
-cyclical unemployment: accompanies fluctuation in real GDP *real GDP (down), cyclical (up) * real GDP (up),cyclical (down) - structural unemployment: a mismatching of skills to available jobs (not bad) -frictional unemployment: due to a transition * taking time between college and job to look for a job. |
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natural rate of unemployment |
full employment: Cyclical=zero (0)
Rate: 3.5-6% and participation rate= 67-68% |
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consumer price index |
an index that measures pries of a fixed basket of goods.
-over 90,000 in CPI, Calculated:
(cost of current year/base year cost) 100 |
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inflation |
percentage rate of change in prices
(new # - old #)/old# |
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deflation |
negative inflation or falling prices. |
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hyperflation |
inflation that exceeds 50% |
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stagflation |
when you have inflation with negative real GDP growth.
*prices going up in economy contracting |
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classical economics |
the study of the economy at full employment *emphasis on the flow of productive resources through the economy.
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two things classical economists identify: |
-wages and prices adjust to changes in demand and supply -there are forces that naturally push the economy to full employment |
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Say's Law states: |
supply creates demand (WRONG) |
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when households gain more income what happens |
-they consume -they save/invest which create capital and long term GDP growth |
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where does income go? |
to the first two components of GDP |
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total aggregate production function |
shows the relationship between inputs and outputs |
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what happens to money that is saved today? |
it translates into future investments |
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what did president kennedy understand? |
how economics worked *hated income tax *lowered income tax -GDP went down federal gov't had more money coming in. |
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crowding out |
a reduction in consumption and or investments due to increases in gov't expenditures |
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crowding in |
an increase in consumption and or investment from reductions in gov't expenditures |
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economic effect |
inverse relationship between tex rates and tax revenue |
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arithmetic effect |
direct relationship between tax rates and tax revenue. |
